The Demand is Catching Up

The average price of 1 sq m in Moscow’s newly built blocks has only risen 0.12 per cent in March to $3935. Realtors, however, reckon that buyers will shortly adapt to the prices charged by developers and the market will grow more dynamically.

The market in the capital’s newly constructed flats has been stable for the 3rd consecutive month. Prices have been predominantly growing in the segments of elite and business-class residence. Positive dynamics have been exhibited in several separate areas as construction progressed, e.g. as the building’s carcass grew on the site of the foundation pitch. The strongest growth (5-15 per cent) is observed just during this period. The spread in average prices amongst the administrative circuits in March was between $3500 (in the South Eastern Administrative Circuit) and $5600 (in the Central) for 1 sq m. The biggest gains were marked in the centre of Moscow (1.7 per cent) and in the South West (1.1 per cent).
 
The supply in Moscow’s market of newly constructed residential blocks in March was 326 addresses. The gain compared to February is marginal – only 1 per cent. Around 77 per cent of the new market is at the stage of a carcass. A significant part of it (27 per cent) is scheduled for commissioning in Q4 2007. The structure of supply is dominated by economy class buildings – up to 70-75 per cent. At the same time, there is a growing trend in the share of business class residences, which in turn differentiates into flats of mid-price range “economy plus” and “premium”.  As for the demand, according to the estimates of MIAN Real Estate Agency, it grew 20-30 per cent in March – depending on the market segment. This gives confidence to say that at this point the process of savings accumulation by most consumers is practically over. The market is returning to an active phase: the consumers who are unable to save for purchasing a flat and forced onto the back foot by the exceeding growth in prices, have caught up with the market having brought to bear their savings and figured it out with credit instruments. However, despite the lull in the real estate market nearing its end, one should not expect a repetition of the 2006 price rush any time soon.

Last year the price growth was primarily triggered by two factors: limited supply and high spending power of the population. Now the price levels are much higher, and the supply of new buildings is rather high. That said, the supply exhibits a strong growth potential: the Government of Moscow has voiced its plans according to which over the next few years the volumes of housing being commissioned should increase nearly twofold. Yet the reactivated market can still provoke monthly gains of 1-1.2 per cent in various segments of newly constructed buildings.

By Aleksey Kudryavtsev
Smart Money