Real estate prices surge in Moscow

The cost of apartments in Moscow is on the rise again. The latest surge comes after 2007 saw prices flatten out somewhat after the record prices reached in 2006.

Moscow’s real estate prices appear to be on the rise once again – with some estimates as high as 10% over the first two months of 2008. And some reports put the average cost per square metre of housing in the Russian capital at almost $4,800.

Economy, business, and high-end real estate are all exposed to the trend as more people look to buy into property, according to Ekaterina Thain, residential department director of Knight Frank.

“There is still a huge imbalance between the demand and supply and the supply is very limited in the centre of Moscow, particularly for newly built houses. The stock market is not doing very well at the moment so lots of people are trying to move their money from stock and try to invest in properties. But last year most purchases were made for personal use,” Thain said.

Some people may be rushing to buy while large loan-to-value mortgages are still available. On the other hand, only about 10% of apartments purchased in Russia are bought with mortgages.

Real estate is an attractive investment opportunity for many Russians averse to putting their money in other places.

CIS Development Director of Swiss Realty Group, Ilya Shershnev, has evidence that most apartments in business or upper-class buildings are purchased by the same people.

“They invest money in real estate and they purchase a flat not for themselves or their children – they buy 10, 15, 20 flats. It’s like an investment for them. So that makes a great problem for the market. Real estate taxes are still very low. If the government starts taking taxes from the real prices of real estate, people would not be able to afford those taxes,” Shershnev said.

Experts differ on their predictions of how the market will perform this year.

Some expect prices to go on rising, while others see the market stabilising.

Whatever happens to prices, the desire of people to purchase flats and establish themselves as property owners looks set to continue.