Real estate downturn to hit future supply and short term prices

Russia’s Prime Minister Vladimir Putin this week called on real-estate developers to maintain the rate of new construction. The call comes as property prices slump, with new construction grinding to a halt.

Just a few months ago, Moscow’s urban skyline was lined with revolving construction cranes. Today, the influx of capital into real-estate has come to a halt. Ekaterina Thain, from Knight Frank expects a sharp downturn.

“Most of the developers have huge borrowings from the banks, so they have to pay the money back. So if they want or don’t want they have to sell. Its not all of the developers but most of them.”

Fitch Rating sees Russia’s real-estate losing 20% to 40% of its value this year and anticipates a sharp drop in the number of new projects. Developers themselves, like Yury Sinyaev, Marketing Director at Konti, try to stay upbeat, saying real estate in top markets like Moscow is unlikely to become much cheaper.

“By the end of the year, the prices could fall by 15%. Expecting them to fall by 20-40 % is not realistic. Of course, in cases where people need the money urgently, they might be ready to sell with a discount of up to 50 %, but that is hardly indicative of the market as a whole.”

But Ekaterina Thain believes that what is sure to dwindle is supply, as developers freeze construction.

“Supply is going down dramatically. I mean, in terms of supply going down we are going down to, I don’t know, early 90’s. Because if you look at most of the construction, its just stopped.”

Developers say the upside of the current deceleration is that buyers will become more choosy. The times when new apartment blocks and office buildings sold regardless of their location, quality or price tags will become a distant memory.