Eyes Turn to Suburbs For Cheaper Homes

With a scarcity of land and steadily rising prices in Moscow, developers and apartment buyers alike are reconsidering their options for affordable housing and increasingly turning to the flourishing "satellite" towns just outside the city.

"We see huge potential in the Moscow region," said Natalya Konovalova, a spokeswoman at PIK Group, the country's largest residential developer. "The prices are lower there than in Moscow, so people can get more for their money."

As construction in the capital focuses on elite and business-class housing, developers are seeing increasing interest in economy-class apartments outside the Moscow Ring Road. Demand for apartments in new buildings beyond the MKAD has risen almost 40 percent over the first six months of 2008, according to analysis by real estate agency Mian.

The jump comes in stark contrast to a steady decline in offers on units in new developments within Moscow, which had seen a 20 percent fall over the same period.

"There's very active construction in rising satellite towns of the Moscow region, such as Mytishchi, Khimki and Dolgoprudny," said Konovalova, referring to three towns located just north of the city limits.

Prices, meanwhile, have remained consistently lower in the suburbs, averaging around $2,850 per square meter in June, whereas the cost of a square meter in Moscow is now more than $6,000.

Even with the decline in demand for new apartments in Moscow, both areas have seen steady increases in price in the first half of the year, up around 30 percent in the resale market. But compared with the doubling that closing figures underwent two years ago, the current rise has seemed almost moderate.

The most recent exception to the nearly universal cool-down in the city market has been in the elite housing sector, which saw the biggest price rises for the month of August, triggered in part by an influx of investment yanked from plummeting stock markets.

"The price increases for business-class and elite apartments were caused by investors escaping the unstable stock market and putting that money into high-quality residential property," said Vladislav Lutskov, general director of the Miel Analytical Consulting Center. "This is largely investment purchasing."

And after a grim first two weeks of September, with the country's stock markets losing more than 20 percent through Monday, investment in real estate isn't likely to slow down soon.

Mian predicts steady growth of 1 to 2 percent per month on the Moscow market in the coming months, a far cry from the lofty heights of 2006 but faster than the current rate of inflation.

The nearly 30 percent growth since the start of the year is also outpacing the rate of increase in some of the world's most overheated markets, including New York, where prices have risen about half that quickly, and London.

"It's beginning to become more of a buyer's market, and we expect supplies to continue to increase," said Maxim Mokeyev, executive director of residential real estate firm Evans. "I don't think we'll see doomsday, though."

Just as spiking rental prices have been pushing people outside the city for apartments, a persistent psychological barrier against moving to the Moscow region has been broken by the appearance of decent buildings in the suburbs, which are beginning to undercut low-quality properties in the city, Lutskov said.

But even with attitudes improving toward settling down beyond the MKAD, real estate companies and developers aren't giving up on Moscow yet.

"There is more opportunity for development outside the city," said PIK's Konovalova. "But there will always be people who want to live in Moscow."