Our Expensive Housing

Many analysts forecast decline in prices on both primary and secondary real estate markets. The main factor weighting the prices down is the decrease in population effective demand, attributable to the economic turndown. If the situation does not improve, the fall in prices can reach 10% per year.

Experts of the "WORLD OF FLATS" federal portal have analyzed prices for residential property in 46 Russian cities based on the results of the first half of 2015. "Moscow (226,220 Rub/sq. m), St. Petersburg (107,338 Rub/sq. m), Khabarovsk (74,780 Rub/sq. m), Yekaterinburg (70,876 Rub/sq. m) and Sochi (69,122 Rub/sq. m) predictably became the most expensive cities on the new housing market in Russia. The leaders swapped places on the secondary market: Moscow (226,335 Rub/sq. m), St. Petersburg (121,357 Rub/sq. m), Sochi (75,437 Rub/sq. m), Yekaterinburg (74,502 Rub/sq. m) and Khabarovsk (73,916 Rub/sq. m)," the research report by "WORLD OF FLATS" says.
Analysts say that the list of the cheapest Russian cities is also mainly the same year after year. According to the results of the past six months, the five outsiders of the primary market were Bryansk (34,292 Rub/sq. m), Stavropol (35,313 Rub/sq. m), Saratov (36,129 Rub/sq. m), Kursk (40,371 Rub/sq. m) and Ryazan (40,538 Rub/sq. m). As for the secondary market, the last cities on the list are Stavropol (40,530 Rub/sq. m), Bryansk (40,748 Rub/sq. m), Izhevsk (42,615 Rub/sq. m), Kostroma (45,096 Rub/sq. m) and Ulianovsk (45,568 Rub/sq. m).

Abysmal Records of the Capital

Oleg Repchenko, head of the "Real Estate Market Indicators IRN.RU" analytical center, told us that nominal prices on Moscow's primary market are at a stop now. "Since the end of 2014, the average price per square meter has been around 220,000 rubles. But the purchase price is often lower. To drive demand, developers willingly provide discounts, which are usually 10%, but sometimes even reach 20 or 25%," explained Repchenko.
Oleg Repchenko also noted that the situation on the secondary real estate market in Moscow is even more complicated. "Lack of affordable mortgage loans has led to significant decline in demand. According to some realtors, it is up to 30-50%. In this context nominal prices in rubles might look stable – around 190,000 Rub/sq. m. But de facto almost nothing is sold at declared prices. Supply exceeds demand, that is why buyers dictate their terms. In fact almost only those apartments are sold whose owners agree to offer a significant discount: 10-15% has almost become standard, but price negotiation is sometimes about 35-30% reduction," added the expert.
Oleg Repchenko believes that one of the main reasons for this is the decrease in effective demand. "Only general economic upturn could reverse the momentum: revocation of sanctions, oil prices growth and recovery of international investors' interest to the Russian economy. All of these are very unlikely to happen in the nearest future, so there is no chance for new demand for residential property to appear. Chances are that prices will be decreasing by 10% each year," he concluded.
Elena Lashaeva, CEO of ARIN, Agency for Development and Research of real estate, further depicted the market situation in St. Petersburg: "At the end of July 2015, the average price of a square meter in new housing development in St. Petersburg was 101,000 rubles. In the economy segment it amounted to 74,000 Rub/sq. m, in comfort class – 105,000 Rub/sq. m, in elite housing – 252,000 Rub/sq. m." In the expert's opinion, the same level of prices will be observed in September: there won't be any expressive growth or dramatic decline.  
"The development community can not bring the prices down because construction costs have obviously grown in the beginning of the year. In the crisis conditions of the first half of 2015, the residential property market entered the recession stage. The demand dropped on average by 30% year-on-year, and ruble prices for residential real estate in St. Petersburg gradually stopped growing," commented Elena Lashaeva. However her forecasts are nowhere near pessimistic.  She says that as the housing problem still exists for most people, it will remain a priority. This market is the first to revive after any crisis.

Regional Trends

Talking about pricing ups and downs on the regional residential real estate market, Dmitry Schegelskiy, CEO of BENUA real estate agency and President of SRO "St. Petersburg Chamber of Real Estate", said that the price boost of December 2014 was adjusted a few percent down in the first half of 2015, and now the market has stabilized.
"I think that in 2015 prices for residential property will remain stable in larger regions with intensive migration streams. In those regions where the markets are very local, in other words real estate is bought only by local residents and out-migration is observed, prices might go down by around 20%," stated the expert.
Experts from GC INTECO told us about the intense competition on the economy class housing market in Rostov-on-Don.  "Since the beginning of 2015, prices have decreased by 3-4%, mostly owing to special offerings and discounts from developers. Nevertheless, today's prices are higher in comparison to summer 2014. They remain on the Q4 2014 level, when they started to grow in the context of currency fluctuations and feverish demand for housing. Anyway, even then peak prices didn't increase by more than 5-10%. We do not expect any violent fluctuations until the end of the year," said the company's representative.

Opinion

Denis Babakov, Head of Sales at "LSR. Real Estate - North-West":

- The prices are likely to change. But these changes will not be the same for all developers. In some companies prices will remain at the current level, in others – go up or down. It depends on demand for products from certain developers. For example, due to high demand, prices in mass market residential clusters, constructed by "LSR. Real Estate - North-West", remained at the level of the stormy end of 2014. The situation is different with prices in the high-class segment. Despite the crisis, the demand for "LSR. Real Estate – North-West" premium residential property has increased. The reason is that our premium residential quarters correspond to all the criteria of this housing type. They are built in unique locations in the historic center, within the boundaries of imperial St. Petersburg. The average price growth rate for our objects is 33%. Business class sites are in high demand, too, which has an impact on our prices. For example, since we opened sales in the "Three Winds" business class complex, the price per square meter increased by 10,5%. While in April the minimum price was 95,000 rubles, today it has reached 105,000 rubles.

Dmitry Schegelskiy, CEO of BENUA real estate agency and President of SRO "St. Petersburg Chamber of Real Estate":

– According to my statistics records since 1995, ruble prices for real estate in Russia have only been on the increase for the last 20 years, regardless of economic climate and political environment. Sometimes they go down with the maximum correction of 15-20% in 2009-2010, upon which the growth resumed. Today the prices on the secondary market are almost at the level of 2008, and on the primary market they are even higher by 8-15%. The current market situation is in its own way unique in comparison to the crises of 1998-2000 and 2008-2010. This is because not only sellers do not want to reduce the price, but also buyers do understand that when all products and services in the country become more and more expensive, real estate prices can't be an exception.

Olga Trosheva, Head of Peterburgskaya Nedvizhimost consulting center

– Average asking price in St. Petersburg has grown by 2,7% in the last six months. Today it is 105,400 Rub/sq. m. As usual, the average price per square meter is influenced by the degree of completion of construction projects. As the commissioning date approaches, prices for housing property grow. Besides, some companies carried out scheduled price increase for a number of new housing projects. At the same time, new objects were brought to market at prices below the average level, which is typical for price determination at early stages of construction. However the number of new projects in the first half of 2015 declined by 23% year-on-year.