News from the Northern Capital

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Older Two-bedroom Apartments Hold Their Value As Residential Market Slips

By Olga Kalashnikova

New, inexpensive apartments are pushing down the price of residential real estate in Moscow and St. Petersburg. While the first half of 2013 has seen an overall increase in the indexes for residential real estate in Russia, the country's two biggest cities have struggled.

"We saw a lot of budget-priced apartments introduced onto the market at prices lower than we have ever seen before, so of course this has significantly influenced the overall real estate market," said Igor Petrov, CEO of Matrix Real Estate.

According to data from Matrix, most in demand are studios from 24 to 28 square meters priced at around 1.9 million rubles ($57,913); one-bedroom apartments from 33 to 40 square meters, priced from 2.2 to 3 million rubles ($67,058-$91,443); and small two-bedroom apartments from 52 to 60 square meters priced from 3.1 to 3.8 million rubles ($94,491-$115,827). Three- and four-bedroom apartments are less in demand and therefore difficult to sell.

By the end of the second quarter of 2013, 18,500 apartments had been sold in the St. Petersburg and Leningrad Oblast regions on the primary real estate market. This was a 16.1 percent increase compared to sales figures for the first quarter in 2013, according to data provided by the St. Petersburg Real Estate Consulting Center. However, the growth in sales for the same period in 2012 was markedly higher, sitting at 28.2 percent.

"A reduction in sales was noticed in spring due to the financial collapse in Cyprus, where wealthy Russians hold 40 percent of all bank deposits.," said Pavel Pikalev, head of Penny Lane Realty in St. Petersburg.

"While the price per square meter has not changed, additional discounts offered by developers affect the final price of the property," said Polina Yakovleva, head of new developments at NAI Becar.

In the first quarter of 2013, the price index for all resale apartments in Russia rose by 10.3 percent, according to Rosstat, the Russian Federal Statistics Service. However, when this figure is adjusted for inflation, the actual price increase falls to 3.05 percent. In St. Petersburg, the overall price for resale apartments rose 5.3 percent but again, when adjusted with inflation, actually fell by 1.6 percent.

"There is a decline in demand for one-bedroom apartments in old concrete-panel buildings, commonly known as "Khrushchyovki" [1960s Soviet-era three- to five-story residential apartment blocks constructed with concrete or brick paneling and named after Nikita Khrushchev] and "korabli" [popular 1970s Soviet-era apartment blocks with nine to 15 stories]. These apartments are priced from 2.6 to 2.7 million rubles ($79,250-$82,298)," said Sergey Drozdov, the general director of the Petersburg Real Estate agency.

"Two bedroom apartments in older panel buildings are still in demand and cost 3.2 to 3.3 million rubles ($97,539-$100,587). However, there is still a high level of interest in the resale of high-end apartments of at least 100 square meters and priced from 13 to 15 million rubles ($396,253-$477,215). When you look at these prices, the price per square meter is stable," he said.

"This year, the usual decline we see in summer started much earlier, in the spring, and we are still experiencing a decline. However, we can't just blame the season for this— we also have to factor in external economic and political factors that can influence the real estate market," said Leonid Sandalov, deputy director of NAI Becar.

From 2000 to 2007, Russia experienced a housing boom with secondary market prices increasing by 436 percent while primary market prices rose by 362 percent. Property prices started to decrease by the end of 2008 and began falling further in the second quarter of 2009. Today the average price of a square meter in a new apartment is 48,795 rubles ($1,487), which is down 7.6 percent from the price in the first quarter of 2008, which was 52,799 rubles per square meter ($1,609).

"The overall space available on the resale market is about 150,000 square meters — less than double the space in newly built apartments, which is about 280,000 square meters," said Pikalev.

Real estate is most in demand in the Moskovsky, Nevsky, Primorsky and Kalininsky districts. The largest boom in newly constructed apartments is in the district near Devyatkino metro station, where a majority of St. Petersburg developers have property. According to data from Colliers International released in early June, 55 percent of new elite housing is found in the Central and Admiralteisky district, 33 percent on the Petrograd Side and 11 percent on Krestovsky Island. The data also shows that the average price of high-end property has also increased by seven percent.

According to a forecast by Matrix, no significant changes on the market are expected for the second half of 2013. While prices are expected to be stable, it will be up to the developers to offer special incentives to attract customers.

Suburbs Are First Choice For Some Buyers

By Olga Kalashnikova

The St. Petersburg suburbs have not always appealed to residents who struggle to afford the city center. But now investors are devloping residential real estate, close to the ring road, providing  suburbanites with their own lifestyle.

Homes with gardens, and other types of suburban living accounted for almost half of all residential real estate put on the market in 2012 within St. Petersburg and the Leningrad Oblast. According to the Petersburg Real Estate Consulting Center, in 2012 these areas accounted for 1.45 million square meters of residential space on the market, while the inner city areas accounted for 1.9 million square meters. By the end of 2012, the suburbs were home to 16.5 percent of the total residential real estate available in St. Petersburg, a figure that has grown to 26 percent today.

"There is a remote area, just 20 to 25 kilometers from the ring road, that provides an alternative to inner city living. Townhouses in these areas are becoming more popular and competitively priced compared to city apartments," said Yelena Karaseva, marketing director at Petrostyle Development Company.

"Usually the price per square meter in these areas is much less when compared to areas in the center of St. Petersburg. This means that with the same budget, one can either buy a flat in the city or a house of about 100 to 110 square meters with two parking spaces," she said.

Data from Matrix Real Estate suggests the price of residential real estate in the same class segment in St. Petersburg and Leningrad Oblast can vary by up to 20 to 30 percent. According to Petersburg Real Estate, for example, the average price per square meter in the suburbs is 67,020 rubles ($2,037) while in the centre of St. Petersburg the average price is around 88,690 rubles ($2,696).

"One can buy a townhouse near Gatchina for 1.1 million rubles ($33,436). We get a lot of interest in real estate like this due to the convenient location as it's only 10 minutes by car to the Moskovskaya metro station," said Igor Petrov, CEO of Matrix Real Estate.

The average price for townhouses in the popular Vsevolozhsk district is slightly higher, costing from 1.7 to 3 million rubles ($51,673 — $91,188). The high demand in this location is due to its pastoral setting.

"Inner city real estate does not offer pine trees and lakes. We call the Vsevolozhsk district the 'golden triangle' for townhouses," said Karaseva.

In 2012, more than 1 million square meters of residential housing was put on the market in the Vsevolozhsk district, the highest figure of any area. This year, however, remote regions in the Leningrad Oblast, such as Gatchina and Kirov, as well as the Kolpino district of the city, have started to develop while real estate in Pushkin, Pavlovsk and Lomonosov are more popular.

"These towns already have a developed infrastructure, so customers have an opportunity to live within an established city while enjoying the satisfaction of living closer to nature. This type of lifestyle choice becomes more important when a customer has a family with children," said Sergei Mkrtchyan, sales and marketing director at the Alexandrovsky residential complex in Pushkin. "Here in the suburbs, people have fewer neighbors, which allows for more camaraderie," he said.

 "Almost all of our customers who purchase townhouses live in them year-round, regarding them as a better alternative to city apartments," said Karaseva of Petrostyle.         

Investors Tout The Benefits Of Hotel Living

By Olga Kalashnikova

More developers are including residential elements in commercial properties, but they come with a twist.

As the law limits the locations where they can build residential properties, real estate companies are starting to build units that are, in effect, apartments, but where residents cannot get local registration. The taxes on these units are also higher than on residential properties but the prices of the apartments themselves are usually lower.

In Moscow the sector has already taken off, and purchasers buy commercial apartments as primary residences as they cost 15 percent less on average than apartments in residential buildings in the same location. In St. Petersburg, the market for these apartments is just beginning to develop but it follows a different pattern, according to Maris, part of the CBRE Affiliate Network real estate company.

The highest demand for apartments in commercial spaces is among investors who plan to lease them out with the help of a management company. "The main feature [of the St. Petersburg market] is the presence of profitable programs for investors and a whole range of hotel-like services that will be provided by the managing company for serviced apartment tenants," said Natalia Skalandis, managing director of property management at NAI Becar in St. Petersburg.

"The market will develop with a special focus on quality, as living in a hotel is a dream come true for most people due to the high level of service. People often don't want to leave hotels when their holidays end."

So-called "apart-hotels" have already gained popularity in Europe, especially in London. Apart-hotels offer rooms for stays from one day to one year. Hotel services are available upon request, though are more limited than in traditional hotels. Usually apartments belong to a single owner, though sometimes they are co-owned. A professional hotel operator manages the residence, joining the project in its beginning and adding the standards of the hotel chain. In St. Petersburg, the Staybridge Suites apart-hotel operates as part of the InterContinental group, according to data from Maris.

"For a long-term stay, serviced apartments are more suitable than apart-hotels. The average Russian is more comfortable renting a regular apartment; however, serviced apartments have a number of advantages. First of all, there are a wide range of additional services available: Food delivery, housekeeping, parking and dry cleaning," said Kirill Akinshin, head of the consulting and evaluations department at Maris.

"Another benefit is the security of the agreement. You won't be told at any moment that you have to vacate the premises next month because an owner decides to sell an apartment. Also, the rent is often lower [in serviced apartments] than in the same residential apartments. The owner earns on the additional services," he said.

Such apartments are common in Scandinavian countries, where tenants can rent out apartments of different sizes and prices in multi-flat residential buildings. In St. Petersburg, the company Sato represents this segment with more than 200 apartments in the central part of the city.

The elite Monferran apart-hotel offers apartments from 255,000 rubles ($7656) per square meter. Prices for business-class apart-hotel rooms on Moskovsky Prospect vary from 130,000 to 155,000 rubles ($3,903–$4,654) per square meter, according to data from Colliers International. The other three projects are in the mass-market class of apartments. "

Given the shortage of land appropriate for residential construction, more and more apartments that are legally considered non-residential properties will emerge," said Akinshin.