Real Estate looking at activity rebound

After a summer slowdown, the Moscow and regional residential real estate market is clicking back into a higher gear, but market players say sharp prices rises are unlikely.

Natalya Blankova, marketing manager of the Peresvet-Invest estate agency says that sales of existing housing decreased over the summer months, but adds that the market was still significantly healthier than at the start of the year.

"The volumes being put up for sale in the secondary (existing housing) market fell 4.9% in August to about 33 thousand apartments. However, that was up 19.1% from December 2009, and up by 26.4% year on year.”

She says that she expects prices and sales to rebound strongly in the coming months, with a shortage of supply possibly leading to price increases.

“The most valuable objects of economy class such as 1-2 bedroom apartments will see the significant price hike. In general, though, the 2010 price increase will not exceed 8-12%, as we predicted earlier this year.”

MIAN General Director Vasil Mitko says that a key factor is strong demand, which even major supply increases in the Moscow region aren’t satisfying

"August results showed no sharp movements in the primary real estate volumes being put up for sale in Moscow, while in the region there has been a dramatic 19% increase. The average price of newly constructed apartment buildings is up 0.8% between July and August, from 159.7 thousand roubles per square metre in July to 161.0 thousand roubles in August.”

Mitko added that currently the volume of new apartments being made available in the Moscow region is nearly double that available in the city with sales outside the major Moscow ring road, the MKAD, also jumping significantly.

"In August the number of flats offered for sale by MIAN partners outside the MKAD, soared by 19% and the number of transactions in the new construction market grew by 15%."

Elena Izhboldina, Head of Urban sales at Century 21 Real Estate agency says that a rebound in sales will require continued promotional efforts by developers and agents, adding that a return to the financial and economic environment, with mortgage availability, before the economic downturn will be essential.

“The real estate market will rebound and will be attractive as soon as the economy will create favorable investment conditions with the mortgage options development, emerging of the new business development waves along with oil price increase and wage increase”

MIAN’s Vasil Mitko also says that an improving mortgage environment will be a key factor in determining the strength of a property turnaround, with real income increases an additional requirement.

“For today the purchase rate of apartments using mortgages is close to pre-crisis – in August, more than 26% of MIAN clients took advantage of mortgage programs. Low rates of real incomes growth more generally are a key factor restraining consumer demand. According to the Ministry of Economic Development the forecast for real income growth will be 4.4% in 2010 and in 3.6% in 2011.”

He says that this means there is unlikely to be a significant pick up in demand which would flow through to prices, leaving the mortgage market to carry much of the burden, and leading to changes in the market.

“Therefore we can not expect a significant growth in demand, as well as a significant rise in the cost per square meter on the back of active borrowings. In this situation, the decrease of offers in the primary market, is likely to redistribute consumer demand from Moscow to the Moscow suburbs, and from the primary market – to the secondary”

Izhboldina from Century 21 Real Estate agency says that the volumes being made available for sale will drive prices.

“If there is a deficit, the market is stabilizing, while prices remain at current levels. An increase in the volume of construction and the number of proposals would result in price reduction.”

Olga Guseva, head of marketing in Managing Company Domostroitel says that another key factor to keep an eye on is the ability of developers to keep up with demand, particularly in the Moscow region.

“We expect a sharp reduction in supply on the Moscow region primary market due to the growth of effective demand, on the back of mortgage conditions improvements, and lack of new construction. This means that those people who were unable to meet their demands on the primary real estate market will look for the re-sale objects in Moscow and its regions.”

Vasiliy Mitko expects that in the short-term supply and demand of the secondary market will outperform the market of new buildings and investment buying will not bring the expected profit.

“For today, the structure of sales transactions on the secondary market occupies 70% vs. 30% in the segment of new buildings. The market has already reached the bottom line, but those planning to buy apartments in order to profit from the subsequent sale must bear in mind that significant price increases in the near future will not happen.”

Elena Lokteva