Analysis of the current low-income housing situation in the country

Housing stock

In January 1999, the national housing stock of the Republic of Moldova consisted
of 1.3 million units, 37 per cent of which were located in the urban areas. In terms
of ownership forms, the housing stock is divided as follows: property of the
Republic of Moldova - 99.98 per cent; and the property of foreign companies -
0.02 per cent. Out of the 99.98 per cent, 90.87 per cent is private property, 9.09 per
cent public property, and 1.02 per cent is joint property. The average floor areas
are 16.8 square meters for a person in the urban areas and 22 square meters for a
person in rural areas.

Dwellings are endowed with water supply, sewerage and central heating systems (a
higher degree in cities and a lower one in the villages). Most of the urban buildings
are built with large concrete panels, monolithic concrete, cut stone and the houses
in villages are built with cut stone and bricks. Most of the buildings have a 50-year
exploitation term. There are no temporary dwellings in the country. The majority
of the dwellings in the cities comply with sanitary requirements. Most of the
owners of the dwellings have ownership certificates.

Housing construction

Between 1970 and 1991, about 1.5-1.6 million square meters of dwellings were
built. As of 1992, the volume of the construction of dwellings decreased
considerably and constituted about 60 per cent of the volume before 1991. The
percentage of private housing construction rose from 58.5 in 1990 to 98.5 in 1998.
Similarly, the weight of the public construction of dwellings has decreased year by
year. This leads to the fact that the majority of the population will not benefit from
the public dwellings free-of-charge as provided in the normative documents, which
are still in force.

Cost of housing and affordability

The cost of an existing dwelling is 2,000 lei (US$ 190) per square meter, while the
cost of new construction is 2,200 (US$ 250). Depending on the quality of the
finishing, the level of equipment, the region, etc., the cost may be even more. The
purchasing capacity of the population is influenced mainly by the slow increase of
incomes. For example, the average salary increased by 643 times during 1991-
1998, however, the general index of the consumption prices increased by 7,386
times, surpassing 17 times the level of the salary increase. Accordingly, the
dramatic increase of the cost of the new construction, which went up by 4,788
times during 1991-1998, surpassed the increase of the population's income by 7.5
times. Thus, only 1-2 per cent of the population has access to new dwellings.
However, through the introduction of the mechanism for providing long-term
credits, the level of accessibility can increase to 5-10 per cent.

Housing maintenance

According to the surveys conducted by the National Agency for Services on

Dwellings and Real Estate, most of the people are not satisfied with the condition
of their dwellings. Only 25 per cent of the respondents are satisfied with the quality
of their dwellings and the adjacent infrastructure. According to the type of the
building, the lowest rating goes to the 16 story monolithic blocks, built recently
while the highest rating goes to the stone-made dwellings and private houses. As
far as the heating, insulation and humidity are concerned, these are the most
important elements appreciated by the inhabitants. The rating given to the common
areas of the blocks of flats is also low. Half of the respondents stated that their
building needs general renovation and/or repair. As regards the neighborhood, the
inhabitants give satisfactory ratings to the access to the urban transport and shops,
but not to the quality of the services. The population is not satisfied with the level
of security of the dwellings, playing yards for children, lights in the streets,
adjacent areas, sanitation and the general maintenance of the areas of common use.

The existing housing stock in the cities is administered by the municipality

enterprises and departments as well as by owners' associations while in the villages
it is left to the owners of the houses.

Reforms and privatization of construction and building materials industry

and housing sector over the past 10 years

Housing construction industry

In 1990, construction was the third economic sector in the Republic of Moldova
and constituted 8 per cent of GDP. It was considered as one of the most prestigious
economic sectors as it provided high salaries and made it possible that employees
obtain dwellings in a short period of time. In the past 9 years, due to the crisis of
the national economy, the construction of dwellings showed a decreasing trend as
compared with the neighbouring countries.

In 1992, the volume of the construction in Moldova decreased by 79.5 per cent as
compared to 1991. Due to lack of funds, about 300 apartment blocks with 12,000
flats and an average level of technical execution worth 35 per cent remained
unfinished. The labour in the sector decreased from 150,000 employees in 1993 to
68,000 in 1995, which was also determined by the immigration of the qualified
employees to the Russian Federation, Ukraine and Israel where salaries are much
higher than in Moldova.
From 1991 to 1994, the construction sector underwent a radical change. Until
1991, it used to be centralized, having construction enterprises administered by
several State bodies. The State Committee did the planning, the technical
coordination, and the respective ministries coordinated and executed the work.
During 1992-1994, the major construction enterprises were transformed into joint-
stock companies. Until October 1999, there were 646 registered construction
enterprises and the majority of them were small firms with 10-100 employees. As
of October 1999, 100 enterprises received authorizations for planning activities.
The approach of the construction project had been substituted with the projects on
investments.

Large construction firms made every effort to avoid separation, maintain monopoly
and geographical influence. However, despite these, small and flexible firms such
as contractors, and subcontractors appeared on the market. The appearance of the
private sector changed the mode of contracting. Although the normative acts on the
organization of fenders were adopted in 1996, they are not sufficiently applied in
awarding contracts.

The construction industry used and continues to use reinforced concrete panels,
monolithic concrete and stone as building materials. As a result of substantial
reduction of funds for the construction of dwellings, which started in 1994, the
construction of large panels, prefabricated elements and monolithic concrete has
decreased. The current trends are construction of low-rise buildings.

Building materials industry

During 1980s, 12 per cent of the overall investments in the construction industry
were allocated to the construction materials. These allocations were focused,
particularly, on the production of concrete, stone blocks, brick and prefabricated
concrete elements. Large numbers of workers were engaged in this sector and their
salaries were higher than the average in the country. Between 1990 and 996, the
volume of the production had reduced considerably and the structure of the
enterprises had changed. Currently, there are 144 enterprises, which are producing
construction materials, out of which 65 are small private enterprises. The majority
of the enterprises of the ex-state sector had transformed into joint-stock companies.
Forty-two per cent of these enterprises are members of the “INMACOM”
Company and produce over 50 per cent of the construction materials of the
country.

The building materials industry produces a wide range of products, including

concrete, gypsum, lime, bricks, porous elements, insulation materials and various
types of reinforced concrete elements. About 75 per cent of the materials for the
construction of buildings are produced in the country. The trend of the
consumption of materials has changed in the recent years. It has decreased from 89
per cent in 1990 to 29 per cent in 1998. Barter transactions are being widely used.
The market is limited due to its small capacity as compared to the value share of
these materials and high transportation costs. There are possibilities to efficiently
explore the local raw materials, for example, for the production of glass, thermal
resistance materials, ceramics, etc. The existing limestone reserves could be better
exploited by modernization of the equipment for cutting the stone. The country
imports a number of construction materials, such as tiles, ceramic board products,
blocks of concrete and gypsum, linoleum and wall paper. According to a recent
survey, currently 80 per cent of the enterprises are successful and generate income.
The most unprofitable ones are the concrete industries.

Privatization of housing

Following the law No. 1324 on the privatization of the dwellings, some 86 per cent
of the State dwellings were privatized over the last 5 years. Out of the overall
number of 263,000 dwellings eligible for privatization, 225,000 were privatized
until January 1, 1999. About 38,000 dwellings and rooms in the dormitories
remained in public property.

Privatization of dwellings in Chisinau took place in an organized manner and more

intensively as compared to other parts of the country. As of January 1, 1999, out of
7.7 million square meters of dwellings eligible for privatization, 6.8 million square
meters were privatized. Only 17,600 dwellings remained under public property.
Only those dwellings, which had unsatisfactory conditions and those from the
dormitories, which are not eligible for privatization, remained State-owned.

It is worth mentioning that the enterprises, which render utilities, have been
reorganized into joint-stock companies but, unfortunately, their privatization is
difficult. This fact influences the establishment of the tariffs for the services. The
payment for utilities constitutes 60-70 per cent of an average family income. The
municipal enterprises managing the dwellings had not undergone many changes.
But owners' associations of privatized dwellings have appeared on the market
which do better job than the municipal enterprises, thus creating competition in the
service-providing market.

Despite the fact that the privatization process was successful, its consequences are
yet to be felt. The burden of repairing property remains on the owners, among
which there are vulnerable families who can not participate in this process. These
families can not even afford to pay the ever-increasing cost of utilities and
disconnecting them from the networks of utilities is another problem that can not
be solved easily. The Ministry of Territorial Development, Construction and
Housing undertakes measures for the settlement of these problems through
elaboration of regulations and instructions pertaining decreased cost of hot water
supply and heating networks. As a result of the increase of the tariffs for utilities,
the number of the metering devices to be installed, for gas, hot and cold water and
heating has increased.
Current trends and involvement of the private sector in housing and
construction related industries

Construction as an attractive business

The privatization of the construction sector started in 1992-1993 and was

completed in 1995. As a result of this, the share of the State enterprises in the
market has considerably decreased. The majority of the State enterprises have been
integrated with private sector establishing joint-stock companies with the State
share as statutory capital.

Studies show that there is a tendency of creating small and flexible enterprises,
which react rapidly to the changes in the housing market as well as the
attractiveness of the business in the field of construction, upgrading and
modernization of dwellings. The legislative framework widely stipulated in the
Laws on Entrepreneurship and Enterprises, joint-stock companies, quality in
constructions and governmental decisions on the construction/projects, regulate the
activities of these companies. Implementation of the strict quality control measure
in construction has led to a decrease in formation of new enterprises. This trend is
visible in the number of authorizations issued for conducting construction-
assembling works and for the production of construction materials.

Technologies and materials, prospects for the future

In Moldova, different methods of construction of dwellings are applied which

include:

 Construction in prefabricated elements (model 143, 135 and 92);

 A combination of monolithic concrete and systems of prefabricated elements

with the use of various types of shuttering;

 Use of natural and artificial stone (blocks made of calcareous stone, clay brick,
raw stone, etc.) on the basis of various types of bricklaying in combination with
prefabricated elements and monolithic concrete.

Prefabricated high-rise construction

Until 1994, the use of prefabricated elements constituted one of the main types of
construction. The number of projects using large panels constituted 60-70 per cent
of the overall volume of the construction and between 18 and 50 per cent of the
overall construction of housing at “Agropromstoi” (the organization which was
building in the rural areas). Currently, the construction with large panels is very
low, constituting only 2 per cent of the volume executed until 1994, although the
potential of the industry is still high. Small enterprises are not involved in projects,
which use these materials.

Monolithic housing construction

The construction of buildings using monolithic concrete started in 1969 when the
first building applying slip forms was built. In 1972, for the first time in the ex-
Soviet Union, the first house using mobile space forms was built in Chisinau. The
world practice shows that in the seismic zones, buildings made of monolithic
concrete demonstrate better structural behaviour. In financial terms, construction
using monolithic concrete is more advantageous than those using large panels are.
Furthermore, it allows the application of various architectural solutions. Even
though buildings made of monolithic concrete are very much in demand, the future
trends seems to be construction of houses with stone masonry combined with
monolithic concrete, which will also be low-rise buildings.

Masonry construction

The construction of masonry buildings is less spread in the country. For example,
in 1994 out of 1,594,000 square meters, only about 65 per cent were built in
masonry. Currently, most of the companies execute projects in stone as the basic
walling system. The technology does not require costly cranes and installment of
lifts and the elimination of facade elements reduce the cost of the house
considerably. In the southern rural areas, alongside the use of the stone for the
construction of private houses, the use of clay brick is also common. Brick has
been traditional material for a long time in these areas. The cost of this material is
very low but has to be tested and made acceptable for use. In order to substitute the
clay bricks, plans are underway to produce soil cement bricks, which is now being
tested.

Under the current import liberalization circumstances, the market of the

construction materials is complicated with materials imported from Italy, Austria,
Germany, Russia and Ukraine. For example, firms like “MoldoCon” and
“Ormotex” offer a wide range of materials produced in Austria by the well-known
“Grundfors” company. Small firms founded over the last 3-5 years are the
promoters of new technologies and put into practice the construction materials
imported by them, including materials for building finishing, roof, doors and
modern windows.

Examples of successful experiences of the private sector in the construction

and housing industries

Statistical data show that 48 joint-stock companies are involved in the housing
sector. There are also 13 limited companies, 10 cooperatives and quite a number of
unregistered individual developers. The large number of them are joint-stock
companies such as “Monolit” S.A., “Consocivil” S.A., “Consam” S.A. in Chisinau
and “Constructorul” S.A. in Balti. The latter is involved in housing construction
using population's investment for constructing apartments and individual houses.

Other companies are:

1. “Mecons” S.A. with a volume of civil engineering works of about 6.1 million lei
(US$ 550,000) in 1998 and about 5.2 million lei (US$ 400,000) in 1999. In 1998,
this firm finished 2 blocks with 225 apartments and in 1999 it has 4 buildings with
331 apartments under construction. The cost of 1 m2 in 1999 was US$ 332, which
was not changed since 1998. This is less than the average prices in the country
(US$ 398). The company uses masonry construction technology.

2. “Orizont” S.A. with a volume of civil engineering works about 5.4 million lei
(US$ 400,000) in 1998 and 2.8 million lei (US$ 260,000 million) in 1999. In 1998,
this form had 5 buildings with 264 apartments and in 1999 6 buildings with 289
apartments under construction. The cost of 1 m2 in 1999 was US$ 290 including
the finishing works and US$ 230 without it. Moreover, this firm produces thermal
insulating material using expanded polystyrene, which is commercialized with a
great success. In 1999, 3,000 m3 if this material was produced. The company also
produces monolithic polystyrene cement.

3. “Castor-haus” joint venture, uses Austrian “Glorit Haus” technologies for

individual housing construction. Business started in 1998 and the same year the
enterprise produced 4 houses. For 1999 and 2000, 15 and 45 houses are planned
for the construction respectively. The cost of 1 m2 in 1999 was US$ 450 including
the finishing and US$ 250 without it.

The cost of housing construction in rural areas is less than that in urban areas. This
is mainly due to the use of local labour and low-cost materials. The prices of
houses in rural areas are almost 3 times less than in urban areas.

Public/private partnership and Government's role in promoting the private

sector

Given the difficult economic transition period, the collaboration between the public
and private sectors becomes important as the situation is not very transparent for
both sides. Thus, the collaboration between the public and private sectors is seen as
a vehicle to improve the housing situation in the country. In line with this, the
Government adopted a number of decisions in the past 6-7 years to facilitate this
collaboration.

These Governmental decisions stipulate a number of benefits for the construction

of dwellings, out of which the exemption from the value added tax for
construction-assembling works raise a big interest on the part of large firms, as
well as of small private firms (exemption from VAT results in a reduction of the
cost of construction works by up to 10 per cent). Persons with low incomes can
benefit from dwellings built out of the public funds. For 1999, about 3.9 million lei
are foreseen for the construction of 11 residential buildings. Investments are
mostly oriented towards construction of houses for vulnerable groups,
reconstruction and strengthening of emergency structures.

There is one more way to satisfy the needs of low-income people by completing
the unfinished houses and giving them free-of-charge to the applicants of
dwellings. If the houses need high degrees of technical preparation (over 75 per
cent), the participation of the people with personal investments would facilitate the
completion of the house. This mechanism is applied only for the houses previously
funded by the State budget, local budget and funds of the State enterprises. For
example, out of 200 unfinished buildings about 46 have a degree of technical
preparation worth 75 per cent given that 3,000 flats are located in these buildings.
A significant support constitutes the crediting of 16 cooperative residential
buildings. This mechanism was approved through a Resolution of the Parliament
of the Republic of Moldova No. 1588 on February 26, 1998.

As regards the use of the dwellings and in the provision of utilities, it is worth
mentioning that until not long ago, in the Republic of Moldova, 30 categories of
population had benefited. Having recognized the social importance of the benefits,
which allow the partial compensation of the low salaries and the deficiencies of the
pension system, the existing system of benefits does not often solve the social
problems and it even worsens them more. Because of the increase of the tariffs for
power resources, recent decisions of the Government stipulated the mechanism of
nominative compensations. As a result, the beneficiaries of the compensations are
the invalids (notwithstanding the cause of the invalidity), invalid children under 16,
participants of the Second World War and families (parents and un-remarried
wives or children under 16) of those who died during the war.

Despite this, a very large number of low-income people, including pensioners,

remained out of the attention of the State. Local bodies have to elaborate and
implement the mechanism of nominative compensations and cover them from the
local budget. Some attempts to work out a mechanism were made by the mayor's
office of Chisinau, but has not had any positive results until now.

In conclusion, it can be said that the discharging decisive functions by the State
does not mean the reduction of its accountability for the public and private sectors
but the delimitation of the obligations between the central and local authorities.
The State has the role of being a moderator through coordination of the actions of
the participants of the housing market such as owners, beneficiaries, builders,
brokers, banks, etc. It should further use adequate procedures for involving all the
groups involved in the programmes and measures related to housing and the real
estate markets.
The functions of the State in the field of construction and building materials
industries include:

 Establishing the legal framework for the functions of these industries;

 Adjusting to the international standards for production observance and

enforcement;

 Protection of consumers' rights and complying with the needs of consumers;

 Promoting cost-effective technologies and construction materials;

 Approving standards and ensuring implementation of quality control measures;

 Dissemination of information on prices, standards and other information relevant

for professionals and the general public;

 Staff training;

 Stimulating and attracting external and internal investment.

Conclusions

1. Housing stock of the Republic of Moldova may, in a way, satisfy the needs.
However, the quality and the quantity of dwellings in future will depend on the
current levels of maintenance practices. Statistical data show that urban dwellings
of the Republic are quite new, have rather high quality and have satisfactory
functional utilities. The statistical data, however, does not reflect the seriousness of
the problems associated with the renovation of the existing housing. There is need
to invest in the areas of maintenance and improvement.

2. Reduction in the supply of new dwellings by public and private sectors is due to
lack of financial resources for credit and a slump in purchasing power of the
population. This fact influences private sector negatively and blocks the progress
of the construction sector in general.

3. Businesses in housing as well as in construction and related industries can be

attracted through the permanent increase of limited liability partnerships (LLP) -
enterprises with private integral statutory capital. Thus, these enterprises will have
their volume of works and investment trust will still remain for large firms that are
well known in the national market.

4. The policy of decentralization of the functions of central and local Governments

is currently promoted in the Republic. In the former system, development of
housing sector was the responsibility of the central bodies which has now been
transferred to local authorities.