A Japanese company that makes innovative wooden houses is targeting the Russian market. It believes it has found an opening in Kazan, one of the country’s fastest growing cities. Young families are flocking there, drawn to its booming IT sector. There isn’t enough housing, but the Japanese company is betting its special structures can help out.
In June, the company held a ceremony for the opening of a new model home — a Japanese-style wooden house — for the residents of Kazan. Young families looking for a place to live went to get a glimpse of the unusual building.
The house is the work of Iida, a major Japanese homebuilder. It builds houses using a traditional Japanese technique of putting together meticulously processed wood.
Housing demand in Japan has been falling as the country’s population dwindles. That prompted Iida to look to Russia.
“I think there is unlimited demand for detached houses in Russia,” says Iida Vice President Masashi Kanei. “The opportunity here is boundless.”
Young people demanding bigger homes
Soviet-era concrete apartment blocks are common in Russian cities. 31-year-old Mikhail Raletin is planning to move his family to the suburbs. He and his wife had a child last year.
They currently live in a 50 square-meter apartment with one bedroom and a kitchen and dining room. This is the norm for Russian families. “I hope to move to a bigger house as soon as possible,” he says.
The region’s economic growth is spurring demand for relatively spacious houses among young people in Kazan.
The model home attracted 120 families within 3 days of opening. But many were worried about the wooden structure.
“May I ask one question? Wouldn’t it get really cold here in the winter?” says a visitor. Temperatures in the region drop to minus 30 degrees Celsius in winter.
Many houses in Russian suburbs are built of bricks. The thickness of walls is an important consideration when looking for a house, as many believe only bricks or blocks over 50 centimeters thick can provide much-needed insulation.
Tatsuya Okawa, director of Iidasangyo Rus, a subsidiary of Iida, explains that wood provides better insulation than concrete and that the house has double insulation. “With heating, this house will be 1.5 times warmer than the average Russian brick house,” he says.
“The insulation seems adequate,” says the visitor. “Japan’s building skills are wonderful.”
Adjusting to the Russian market
The biggest obstacle is the price. The house, built by Japanese builders using materials shipped from Japan, costs about US$126,000. This is almost twice the average Russian brick house, which sells for about US$54,000.
To reduce the cost, Iida sourced materials in Russia. It procured timber from local forests and commissioned a local firm to process the wood into building materials.
Iida has precise specifications. The company requires a margin of error of 0.5 millimeters or less. It told Russian firms that strict attention to measurements is needed for airtight Japanese-style houses.
“Requests for such excellence inspired us to do better,” Sergei Mamaev, the owner of a local timber-processing firm. “We are now working to achieve the same quality levels for our other products.”
After making those adjustments, Iida is now able to put houses on the market for about US$90,000.
The Raletin family decides to buy one. Mikhail says the space — about 140 square meters — and warmth sold him. “The house is well-designed and fits our lifestyle.”
It’s not easy to finance a house in Russia. As interest rates are almost 10 percent, it’s rare for people to take out mortgages. So Iida worked with a Russian bank to cut the high interest rates for home buyers.
Okawa held talks with the bank, and they agreed to create new mortgage products. SBERBANK Deputy Manager Ruslan Akhatov said, “We learned its products are high quality. We are looking forward to doing business together.”
In response, the state will provide subsidies for home purchases and other assistance.
Tatarstan Investment Development Agency CEO Taliya Minullina says, “We believe that people need cozy houses in order to lead happy lives.”
Okawa says, “There are plenty of forests in Russia, but wooden houses are not so common. We hope to change this. We’d like the people of Russia to know how great wooden houses are.”
Iida launched its subsidiary in Russia 2 years ago. But it’s been difficult to adapt to the local climate, culture and lifestyle and offer housing that satisfies the locals.
The Japanese builder is now facing fierce competition from European rivals. Taking advantage of its unique skill set, it is well on the way to carving out a niche in the tough Russian market.