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 According to the recent speculation, the price of real estate in Russia, and Moscow in particular, is to drop significantly. Knight Frank experts analyzed current market trends and concluded that the current economic conditions will not result in a real estate crisis. Consequently, the current panic is being generated artificially.
Most likely, execution of certain projects will be postponed due to reduced financing. Appreciation of bank funds may have a strong impact on large-scale projects that have not yet started construction. However, projects that are currently underway will most likely be completed and will account for the bulk of primary offers on the real estate market in upcoming years.
In the short run (3-5 months), analysts see some correction of prices, which stems from the current instability of the stock exchange and banking sector. However, real estate prices will see stabilization and considerable growth in 2009 as a result of a decrease in construction.
The significant growth in prices for luxury residential real estate in Moscow, which manifested itself in the first 8 months of 2008 (14% in the primary and 25% in the secondary market), might be contributed to the reduced growth rate observed in late 2008.
Analysis of monthly dynamics shows a seasonal drop in prices in July and August (+2.2% and + 0.4% respectively). The same seasonal trend was observed in 2007 and even during the peak in 2006.
Many market players currently expect sizable discounts to be offered on real estate. However, judging by foreign real estate market trends, prices have reduced quite insignificantly even in highly-developed European countries where the crisis started a year ago. For example, annual price reduction in the luxury segment of Central London hit 1.6%. While the index in question is somewhat higher in the mass market, the year-on-year result does not exceed 10%. This trend is possible since 95% of real estate in London is purchased using credit. In Russia, however, mortgage lending is still not widespread. Therefore, there are no conditions for a sizeable drop in real estate prices.
London trends show that there is no point in expecting correction of luxury real estate prices. Regardless of the general drop in London real estate prices, the value of sites priced at over £10 mln. grew by 2.9% in August 2008 alone, whilst the annual growth rate exceeded 19%.
“Europe followed a pattern, which has in many ways instigated this crisis. But this pattern is irrelevant for Russia. In Europe people invest in order to profit, while in Russia investments are seen as a way to keep the money earned safe. Besides, in developed markets it is only necessary to have 10% of the total price of construction at one’s disposal, while in Russia one is to provide 100%. The global financial crisis, the situation on Russia’s stock exchange, and currency fluctuations have challenged the reliability of many popular investment options. Real estate is currently seen as the most stable means of investment. Taking into account the limited scope of offers and a stable demand index, the price of Moscow real estate cannot help but grow, regardless of temporary correction,” says Ekaterina Thain, director of the Residential Department and partner at Knight Frank.
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