The real estate sector of Russia has been gaining strength for five consecutive years estimated at 70 percent last year.
Large sums of dollar investments were pouring in from banks and oligarchs. According to Trust Bank in Moscow, $113 billion or 15% to GDP came from construction alone. This is why real estate became one of the three biggest contributors to Russia’s economic growth, Real estate prices have risen 253 percent in the primary sector and 288 percent in the secondary sector between 2000 and 2005. Over the same period, inflation registered at 189 percent.
As a result, Russia as a whole, particularly Moscow, will be in need of more residential buildings, office and commercial spaces. Last year, companies were “levering up the construction frenzy,” in order to cope with the demand which saw the release of four credit-linked notes amounting to a total of $450 million and 18 ruble bonds worth $850 million from investors to finance construction.
The residential real estate sector is one of Kremlin’s four National Projects headed by first deputy prime minister Dmitry Medvedev which aims to create “affordable and comfortable housing for the citizens of Russia.”
The Kremlin is “targeting reforms to the financial sector to make it easier for regular Russians to borrow money to buy a new apartment.” In 2005, it introduced laws that permits banks to refinance housing loans for the first time. Mortgage loans reached $5.5 billion last year compared with $1 billion of 2003. Russia’s state-owned bank VTB, rated as the second largest bank in the country leads the growth as its mortgage rose to 270 percent in 2006 or $875 million by end of 2006.
The main source of growth is the residential real estate sector as it volume of construction was up by 44 percent between 2000 and 2005. In 2006, residential growth rates sped up to 12 percent. According to Trust Bank, 48 million square meters were added valued at $60 billion.
The commercial real estate of Russia is presently the fastest growing worldwide, as about $3-3.5 billion was the total investment in 2006, the biggest of which is Moscow, though second only to Paris who has an annual growth of 1 to 1.2 square meters.
Moscow has a total commercial space of 8.5 million square meters with very low vacancy rate despite high rental rates, according to Trust Bank.
On the other side of the picture, experts are anxious whether “this boom is boom is actually bubble,” considering the average monthly earnings of a person is $390 only
According to Greg Thain, director of Knight Frank, a leading real estate broker, price growth halted in the last quarter and there is evidence that sellers were dropping their prices in order sell.
“In the future, the residential real estate price dynamics in Moscow will be erratic, and will depend on the housing quality. Due to the limited purchasing power of the population (even including mortgages), prices of economy class housing have reached the ceiling. In the business class and premium real estate segments there is potential for further price increases - the shortage of supply and excessive demand from the higher income bracket still exist in the market - but do not rule out 10-15 percent downward price correction soon," says Dyomkin.
Further, analysts believe about 4 to 6 percent of apartments were purchased by speculators. Once they put up the apartments for sale, prices could drop to the bottom, according to Trust Bank.
Ma. Roma C. Agsalud Real Estate News | Tampa Real Estate |
