View Full Version : Russia housing market report (market reaching top?)

11-08-07, 12:54 PM
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The [removed] Corporation presents for your attention a brief review of real estate market conditions in Saint Petersburg.

Statistics used in this report are based on actual sales activity and consumer demand. These are obtained as a result of regular monitoring conducted by the [removed] corporation. [removed], our corporation has access to reliable data regarding sales in all city districts and covering all types of houses and apartments. This independent source ensures the objectivity and authenticity of analysis.

Basic Tendencies of Real Estate Market

In the 2nd quarter of 2007, the residential sector of market in Saint Petersburg was in a stage of stable equilibrium. As one would expect, the volumes of proposals grew in both the primary and the secondary markets. Volume of supply on the secondary property market closely approached the maximum value previously achieved during the period of price stabilization in summer 2005.

Average prices in the segment of mass demand housing hindered further increases. Prices in segments of comfort- class housing and elite class, on the other hand, demonstrated positive dynamics.

Toward the end of the 2nd quarter of 2007 at the real estate market in Saint Petersburg, the basic suppositions were outlined, which more or less and to one extent or another of likelihood, can potentially influence the near future long-term market tendencies.

Primary Market

Primary Market Supply

In first quarter of 2007 the summary area of the objects, supplied on the market, composed 4,77 m2, which is comparable with the market volume in the 3rd quarter 2006, and also in the first half-year 2004.

The output of new objects in the market in the 2nd quarter of 2007 was 959,34 thousand m2, which is 83% in over the previous quarter of the 1st quarter of 2007. The last time the index of new objects of construction market output was steady was in the 4th quarter of 2004.

For the first half-year of 2007, 1,48 mln. m2 were brought to market, a number exceeding the volume new buildings brought to market in all of 2006 by 23%. However, this is not as much as it may seem at first glance, since with respect to the new buildings brought to mrket in 2005, the ratio is only 79%, and with respect to 2004 or 2003, that of 53% and 61% respectively.

In market structure according to the design type, brick- solid-cast houses continue to be the most popular, in spite of an insignificant decrease of market share by 2,9% in comparison with the previous quarter.

The portion of the brick houses grew considerably: from 3,6% in 1 quarter to 5,6% in the second. This is due to the advent at the market of four new projects, among the largest of which residential estate “Smolensk” in Vasileostrovsky district on Behring street, 25-27 (developer “Construction trust”) and residential estate on Shelgunov street, 7 in Nevsky district (developer “House-invest”).

Remaining segment types remained approximately the same with exception of panelized houses. This segment type increased slightly due to marketing of the Gatchina Integrated house-building factory objects, including residential estate “Fortune” located in 59B block (137 series) and the residential estate “Antey” in Moscow district, pr. Kosmonavtov (121 series).

In the 2nd quarter of 2007, the portion of standard housing in total market volume was stable, close to the minimum value within the last 5 years. The portion of “comfort” class housing was, in contrast, close to the maximum level. The portion of elite housing was on its normal level within 10% ±1,5%.

Analyzing the tendencies of market segments under the conditions of price stabilization in the period starting from the 3rd quarter of 2004 to the 4th quarter of 2005, it is possible to assume that prior to the end of 2007 the total market volume for comfort- class housing will likely decrease due to the increase in standard housing. The portion of elite housing, will most likely, not change significantly and will remain within the limits of its normal range.

The standard structure of supply of new housing according to types of apartments in the 2nd quarter of 2007 remained practically unchanged and corresponds to current tendencies of demand. In the brick and brick- monolithic house segments, the structure of supply closely corresponds to what is recommended as “universal” design: 53 - 26 - 21 (1- 2- 3 room apartment accordingly). In the panelized houses, in comparison with the previous quarter, the portion of one-room apartments slightly decreased due to the increase in the two-room apartment.

Primary Market Demand

The results for the 2nd quarter of 2007 speak to the fact that the market is located in the suspension of equilibrium. Buying activity is in the state, typical for periods of the calm market development.

The dynamics of primary requests testifies to a certain reduction in buying activity in comparison with the last year; however, activity of demands on acquisition of housing substantially exceeds the analogous indices of the past periods of stable state of market.

Sales activity, which is traditionally low in the 2nd quarter (the exception for recent years was only the 2 quarter of last year, caused by speculative demand), was fixed in present year as its historical minimum, without having risen above the mark of fourth of million square meters.

The structure of sales according to the types of apartments is somewhat opposite to the situation in the 1st quarter of this year and is also typical for calm market. On the diagram below, the decrease of sales of one-room apartments relative to the background of increase in sales of three-room and multi-room apartments is well noticeable.

Basic demand in the brick and brick- monolithic houses was extended in segment of 1- room apartments in the range: to 28 m2 and 32… 37 m2; in segment of 2- room apartments in the range: to 53 m2 and 58… 63 [m2; in segment of 3- room apartments in the range: to 75 m2 and 95… 100 m2.

Basic demand in panelized houses was extended in segment of 1- room apartments in the range: to 28 m2 and 32… 37 m2; in the segment of 2- room apartments in the range: 63… 68 m2; in the segment of 3- room apartments in the range: 80… 85 m2.

Primary Market Price Behavior

The greatest increase in mean prices in the passed quarter was fixed in segment of “comfort” class housing, where the price increase was 9,09%. Slightly less the prices of elite housing segment went up - to 4,88%. Mean prices in standard housing segment were insignificantly reduced - of 0,18%.

Thus, in June the mean price in segment of mass demand housing (standard housing) was 2 204 $/m2, moreover in brick and monolithic houses - 2 220 $/ m2, in panelized and the monolithic- panelized - 2 080 $/ m2.

Mean price in comfort- class housing segment was 3 094 $/ m2, moreover 2 905 $/ m2 in “comfort -” segment and 3 257 $/ m2 in “business” segment.

The mean price of square meter in constructing elite apartment in historical center of Petersburg was 9 242 $/ m2 in segment “elite A”, and exceeded 5 272 $/ m2 in segment “elite B”.

Given table presents the statistics regarding change in mean prices, expressed in basic currencies, in different segments of housing market. Reduction in US dollar exchange rate really reduces the rates of increase in ruble prices; but, it is still very early to speak about the complete compensation of price increase due to cross-rate change.

Secondary Market

Secondary Market Supply

After the transition stage, which replaced the period of two-fold increase in prices against the background of sharp reduction in supply at housing market, the second quarter of present year was marked by an approximately 1.5-time increase in supply. Actually, secondary market by the total volume of supply approached the index for the 1st quarter of 2005, missing it by just several percentage points.

The basic volume of supply involved, as one would expect, two- and more room apartments, which quantity in total volume grew approximately double.

On the other hand the dynamics in typology of supply, in spite of absolute increase in supply volume, illustrates the potential possibility of prices increase of the mass small housing as a result of its portion reduction in total volume.

Secondary Market Demand

It is evident on the diagram given below that a quantity of agreements, accepted by Federal Registration Service for registration in the 2nd quarter of 2007, is practically identical to quantity of agreements, accepted by FRS in the 2nd quarter of 2005, i.e., within the period, which corresponds to the state of equilibrium of housing market of Saint Petersburg.

The analysis of sales dynamics according to types of apartments shows a sharp increase in portion of transactions on one-room apartments and less sharp increase in portion of transactions on two-room apartments, what proportionally decreased the portions of transactions in total volume of rooms, and also three- and more room apartments. Moreover, it is interesting that the increase of transactions quantity in the 2nd quarter of present year, in comparison with the previous quarter, is caused precisely by the increase in demand for one- and two-room apartments.

Secondary Market Price Behavior

It is evident on the given diagram that in the 2nd half-year 2007 the price gap between the open and closed transactions retained minimum values, what corresponds to periods of market stable operating. The continuous increase in prices of supply relative to the mean prices of the closed transactions again emphasizes the high inertness of secondary market and the overstated price expectations of salesmen.

Price difference between the housing square meter prices on the primary and secondary market in the 2nd quarter of this year was stabilized in normal range from 20% to 23%.

The rates of mean prices increase at secondary market in the 2nd quarter of 2007 went down in average to 0,3%, composing summary for the quarter only 0,89%. However, as a whole in the past half-year prices increase was 5,11%. The mean price of supply at the end of June was 2 714 $/m2, mean transactions price - 2 444 $/m2.

Conclusions and Forecasts

In summary, the main characteristics of the current market state is as follows:
- A state of equilibrium between supply and demand, continuation of prices stabilization period at housing market;>>
- A gradual growth of volumes of new building at the primary market;
- A small displacement of supply volumes into economy-class segment, in essence due to appearance on the market of objects in the zones, which do not assume high price segments housing building;
- An increase in bank interest in interaction with all real estate market participants: the development of agreed credit facilities of individuals and developers, what on one hand contributes to increase in demand, on another - makes it possible for house developers to accomplish construction without the attraction of financial resources of private investors and to sell housing at the higher stages of completeness of objects;
- A further stratification of housing market and as consequence, the increasing difference in price tendencies, in particular, the continuous increase in housing prices of the upper price segments against the background of stopped dynamics at the mass sector.