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Apartments Cost in Russia: Tendencies and Prospects
October 10, 2006 12:31

The beginning of the last week gave a measure of hope to those people who are still going to buy an apartment in Moscow. The cost index of a square meter grew only 0.8 % within a week and amounted to 3.953 dollars. This fact let the analysts make optimistic forecasts, according to which, price deceleration may mean that upside in prices is used up. Nevertheless, even this upside in prices makes about 40% per year and leaves inflation behind. Interest on deposits, shares of Russian companies and cracked unit trusts lose in comparison with profit got from investments in real estate. But this is the capital, where prices are formed on assumption of many factors having nothing in common with all-Russia tendencies. Here one shouldn’t forget that Moscow is a capital concentrating finance and bodies of power, a place of great influx of foreign tourists bringing currency with them.

Falling income of investments put in Moscow real estate is accompanied with enlarging supply. According to the company Russian Research Group, from September 14 to 20 overall supplies in Moscow amounted to 18 510 apartments, which is 30% more than in August. Specialists believe this process to continue. The current situation made the most prudent investors sell out collected flats. The other reason why boom at the property market has abated is the fact that investment appeal of residential real estate is gradually decreasing: high cost of apartments makes it unprofitable to buy flats for the sake of renting.

 However, real estate prices increase is not only Moscow’s prerogative. The cost of a square meter is going up all over the country, even in most remote regions. The reasons of this are quite clear: it seems that authorities, competitors and numerous analysts take it for granted that demand forms prices and it is impossible to improve the situation by taking administrative measures only. The only way out is to enlarge the house-building scope.

Prices rise mostly in big cities, and there is nothing surprising in it. After all, realty market price is determined according to apartments’ quality all over the world, and the wish to move from a lonely spot to mega polis remains a great motivation. Such migration of citizens creates tension at the real estate market of big Russian cities. After the manner of Moscow, prices grow up-tempo in St. Petersburg, known as the second capital, and in Moscow region. St. Petersburg beckons provincials with its capital atmosphere, better employment possibilities, and comfortable living conditions.

St. Petersburg witnesses a pent-up demand, which breeds an adequate supply: during August alone the cost of a square meter rose 20%, and the average price reached the peak of 2300 dollars. Meanwhile, the analysts point out the fall in number of purchase and sale transactions, and this fact may mean correction of prices at the real estate market.

While people in both capitals are getting used to stability at the market, other regions see spiraling prices.

Apartments in Moscow region have become a good alternative for those, who are not able to buy a flat in the city. Besides, sometimes it’s much faster to get to work from suburbs than driving the whole way through Moscow center from one side of the city to another. At the same moment the ecological situation in suburbs feels better, tempo of modern living is slower and the cost of apartments is within reasonable limits. However, the average price of a square meter in the region grew over 100% for the last 12 months.

One can see the similar picture in those regions, where people are quite satisfied with working conditions. There exists a good employment opportunity and therefore prices are driving up.

Growth of citizens’ income impacts on prices rise: people are ready to buy. And now a new price record has been fixed in Ufa, the capital of Bashkortostan: the average price of a square meter has reached 42 thousand rubles (1567 dollars).

 Let’s take another example, Tyumen. Here prices have grown 50% since the year began. How can one take all these facts? It is easy to understand that not all people lose with all these prices going up. There are owners of odd apartments, investors and, after all, estate agents and house builders, who are busy with calculating their profit, got under current conditions. One should remember that in developed countries high demand for apartments is considered to be an absolute proof of healthy economics.

So, there is no point in complaining about high prices, they show correlation with demand. More houses should be constructed to saturate the market and improve the residential situation in the country. When there are many flats, accommodation will become reasonable at last.


Olga Pletneva


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