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How Kerch bridge would affect the economy of Crimea

Author : News organization EurasiaNet

Contrary to the expectations of the authorities, opening the Crimean bridge would not reduce prices on the peninsula
14:43, 2 July 2018

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Contrary to the expectations of the authorities, opening the Crimean bridge will not likely reduce prices on the peninsula. First, freight carriers announced that they do not want to reduce prices for their services, and, secondly, part of the goods fall into the Crimea through ports, bypassing the crossing.

The launch of motor traffic on the bridge became a factor that contributed to the growth in prices for rental housing on the peninsula. Prices for new housing might reduce not sooner than in a few years: materials that are more affordable at the expense of delivery would be delivered only in 2019, and some time is needed for construction.

Finally, the tourist flow began to grow noticeably. Partly, thanks to the bridge, and partly, because of the unexpected growth of tourists from mainland Ukraine.

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In the autumn of 2018 cargo transport should begin to run along the Crimean bridge, and at the end of 2019, railway train should be launched. This means that the goods that now lead to Crimea through the ferry crossing, will begin to haul through the bridge. We are talking about the mass consumption goods that are carried in trucks, and the bulk goods transported by vessels in railway tanks (mainly gasoline and diesel fuel).

Many officials are convinced that with the launch of traffic on the bridge of freight and rail transport on the peninsula, the prices for goods will decrease. Head of Crimea Sergei Aksenov, as well as Russian President Vladimir Putin and Russian Prime Minister Dmitry Medvedev, adhere this opinion.

There is no conventional proportion of the cost of crossing in the final cost of goods sold in Crimea. The head of the department of the Crimean unit of the Federal Antimonopoly Service (FAS) Denis Laktivnov believes that the ferry adds to the prices of goods 7-10% of their value. Prices for construction goods are 20-50% higher than Russian ones due to the crossing, Sergei Aksyonov notes. Two years ago, vice president of the Crimean Chamber of Commerce and Industry Andrei Serguchev told Eurasianet.org that depending on the goods, the cost of its crossing can range from 10% to 100% of its value.

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However, the authorities' hopes for cheaper goods imported into Crimea are hardly justified. First, most carriers do not plan to reduce the cost of their services after the opening of a cargo message on the bridge, said Anatoly Tsurkin, the head of the Association of Freight Forwarders of Crimea. The demand for transportation to Crimea is much higher than the demand for the export of goods from Crimea. For this reason, for example, the cost of shipping a truck with products of 20 tons from Moscow to Simferopol is 150 thousand rubles (2 380 USD), and back it is 50 thousand rubles (800 USD), and the ferry has nothing to do with it, according to Tsurkin.

Secondly, not all cargoes sent to Crimea come through the ferry crossing. Some of the goods are delivered directly to the peninsula, by ships, to the ports of Kerch, Yalta, and Sevastopol, employees of Crimean Sea Ports and the port of Sevastopol told Eurasianet.org. In addition, many transport companies are engaged in the delivery of goods in containers to the port of Sevastopol (other ports do not accept containers). With their help, import goods are brought to the peninsula, first, they are delivered to the port of Novorossiysk, and then (often on another ship) to Sevastopol.

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"Personally, I do not believe that in general, the prices for food products will decrease in Crimea. Payment for the crossing was and is only one component of the increased price for goods imported into Crimea. The distance to Crimea, challenging Crimean roads (after the bridge) and other nuances related to the delivery of food to Crimea will not disappear anywhere," said Yalta businessman Oleg Zubkov.

The first consequence of the opening of the movement of cars on the Crimean bridge was the rise in prices for long-term rental of housing. At the beginning of June 2018, compared to the same period last year, rental prices rose by an average of 9.8%, according to a study by the Moscow agregator ads "World Apartments." Most of all, the prices grew in Yalta and nearby settlements (Gurzuf, Massandra, Alupka, Alushta). In Sevastopol and Simferopol, prices rose 3.1% and 4.3%, respectively.

General Director of the "World of apartments" Pavel Lutsenko associates the growth of prices with the opening of the Crimean bridge, the study said. "The rates are just starting to increase, and in July-August they will reach a peak, increasing by 60-70% of the current level," he said. The press service of the portal declined to comment on the situation.

Reduction of prices in the market of the new buildings should be expected not earlier than 2021-2022, said Vladimir Ryabchinsky, a specialist in the residential real estate of the Sevastopol consulting company "RK." The housing, which is currently sold in Crimea, is built of materials imported into Crimea through a ferry crossing. Perhaps in 2019 developers will start using cheaper materials for delivery, but it will take several years for their cheapness to affect the final cost. Due to the bridge, the cost of construction can be reduced by 20%, he believes.

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However, Che Crimean real estate agency "Dobrostroy" is convinced that the bridge itself does not affect the current market for either new or secondary real estate. "There is no any connection between the opening of the bridge and the change in property prices. Prices for real estate are determined by the purchasing power. The bridge does not rise your salary, so the prices have not changed. As for demand, after the opening of the bridge, it also remained the same. It has been still consistently high, and now it has neither fallen nor grown," "Dobrostroy" representatives told Eurasianet.org.

According to observations of real estate agent Ksenia Schwartz, sellers of the secondary real estate for about a year just raised prices on the eve of the opening of the bridge, so the possible increase in prices for this type of housing has partly taken place thanks to the expectations of local sellers.

According to observations of Krymstat, the average prices in the primary market in the first quarter of 2018 increased from 49.3 thousand (780 USD) to 55 thousand (875 USD) per square meter in comparison with the same quarter last year.

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In January-May 2018, according to the Crimean authorities, the tourist flow in the Crimea increased by 27.7% to 1.1 million compared to the same period last year. It is claimed that 17% of all tourists during this period arrived using the Crimean bridge. In other words, 17% of tourists who arrived in five months came for two weeks (from May 16, when the bridge was opened, until the end of the month).

It should be noted that the authorities statistics is the only source of data on tourists.

The authorities also argue that almost a quarter of tourists (23%) came to Crimea on cars from mainland Ukraine, compared to just 5% in January-May last year, suggesting that this year the growth of tourist traffic is not only due to the opening of the bridge .

The local authorities have very optimistic expectations about the growth of the tourist flow after the opening of the bridge, ranging from 40% (up to 10 million people per year) to about 20%. However, considering the numerous problems of the tourist industry of the peninsula - in particular, the high cost of living in comparison with other areas with a strong backlog in service - conservative analysts called for refraining from ambitious forecasts.

Alexander Alikin

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