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14 Oct, 2008 08:32

Downturn may not come to rental property

The price of commercial real estate in Moscow grew 5% in September to over $6500 per square meter. The figure comes at a time when Russia's residential real estate market is widely expected to slow down or even dip next year.

Moscow's eight year run of rising real estate prices and rising rents is widely expected to come to an end next year.  But although the classic expectation in a downturn is falling rents and prices, that might not be the case in Moscow.

Many Russian real estate developers have been unable to secure loans and capital and have been forced to call off future projects – choking off the supply of new homes.  And the nascent mortgage market has all but ground to a halt, with lenders demanding much larger deposits and interest rates in excess of 20 percent for a Ruble loan.

Anna Levitova, Managing Partner, at Evans says the financial crisis could change the dynamics of the market.

“The rental market is still strong and might become even stronger and more locals would be on the rental market as tenants because they are unable to buy.  So I would imagine many people who would be unable to sell at the expected price will just rent out their apartments.”

But not all analysts agree on how the rental market will go – with rates depending on factors such as location, renovation, and construction according to Elena Pervakova, Managing Partner, at TWEED

“I think that today an increase in prices is unlikely.  What we can expect is a differentiation on the market.  Good flats – expensive ones with good renovation in nice buildings will retain their value.  But lower-quality apartments which haven't been maintained or built so well – these could actually become less expensive.”

Renting a 2-room apartment in the city center at current market price starts at $2,500 a month.  A 2-room elite flat goes for anywhere from $5,000 to $10,000 or more per month. The city is unlikely to lose its reputation soon as one of the most expensive places in the world to find a place to live.


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