Do you remember the U.S. housing crisis? Or why China’s economy is facing problems? Russia is experiencing a similar situation.
Russia’s largest construction company, “Samolyot,” is on the brink of collapse. This isn’t just an economic headline, but another piece of the puzzle in the larger systemic crisis fueled by Russia’s aggression, international sanctions, and economic isolation. So, what has happened to “Samolyot” and what impact will this have on Russia’s construction industry?
“Samolyot”: A Short Rise and a Rapid Fall
Once a flagship in the construction sector, “Samolyot” has seen a dramatic downturn. The company’s stock has dropped by threefold, and top executives are scrambling to offload shares at any cost. What’s behind this downfall?
- Declining demand for housing. Russians have stopped buying property due to economic uncertainty and instability.
- The end of subsidized mortgage programs. The government, which had been supporting the market through subsidies, can no longer afford to do so due to budget shortages.
- Credit burden. “Samolyot” has accumulated massive debt with banks, and now, with the key interest rate raised to 21%, servicing these loans has become impossible.
This situation mirrors the Chinese Evergrande crisis, where the company collapsed, leaving behind billions of dollars in debt and thousands of unfinished buildings.
Impact on the Construction Sector
Experts are already predicting that “Samolyot’s” collapse will trigger a chain reaction that will affect the entire construction sector in Russia. Here’s what to expect:
- Unfinished projects and defrauded investors. Thousands of people could lose their investments, and frozen construction projects will remain stalled for years.
- Plummeting prices for building materials. The drop in demand will lead to a fall in prices, which will hit small and medium-sized businesses hard.
- Bankruptcy of other companies. Smaller developers, who rely on larger players, will simply not survive.
This will be another blow to Russia’s economy, which is already under pressure from sanctions and the war. It recalls the U.S. housing market crisis in 2008, which triggered the global financial crisis. While the scale may be smaller in Russia, the consequences for the domestic market could be devastating.
Russia on the Verge of a New Economic Crisis
The Russian construction industry had been one of the few sectors maintaining some semblance of stability. However, the Kremlin’s aggression against Ukraine and international isolation are now eroding even that. Budget cuts due to sanctions, the ruble’s devaluation, and capital flight are creating the conditions for further economic degradation.
The collapse in construction could also trigger social issues: unemployment, social unrest, and an increase in emigration. This again highlights how Russia’s aggressive policies are ultimately destroying its own economy.