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. Last Updated: 07/27/2016

St. Petersburg Property Market Rebounds




The residential market in Russia's northern capital seems to have crept back from the precipice. Dmitry Sinochkin, who covers real estate for St. Petersburg business weekly Kariera-Kapital, reports.


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At the beginning of 1999, St. Petersburg real estate agents specializing in the residential sector were hanging tough. Sales had fallen by 70 percent from 1998, prices were down by 35 percent to 40 percent, profits had disappeared. Numerous city real estate companies were on the brink of joining the dozen or so firms that went bust the year before, while other agencies found themselves forced to eat into their savings to pay off debts. New rentals were rare and purchases almost non-existent because the few potential buyers around were unwilling to part with their money, waiting to see whether or not prices would drop any lower.


But toward summer last year, the situation started to level out. By the beginning of fall some positive tendencies were discernible, and by the end of the year, both prices and the number of clients had been steadily rising.


CHANGE IN CLIMATE


The situation in 1999 was defined by several factors:


-The aftermath of the August 1998 crisis: There was a sharp fall in the number of those who could afford new apartments (prices in the real estate market are traditionally marked in dollars), and there was the obvious general feeling of instability.


On the other hand, the crisis caused a reassessment of the real cost of the city's apartments, as prices in certain residential categories - some of the expensive reconstruction projects, and older apartments with exclusive European-standard renovation - turned out to be overvalued. In Moscow the market had become overheated, and the leveling-out process there consequently hurt even more.


-The rise in demand for new building projects: The cost in rubles for building materials and services enabled builders to lower their prices for a few months and win over clients from brokers in the "secondary" market for existing housing stock.


Therefore, buildings that were either finished or nearing completion benefited from a rise in demand as the usual problems - disruption of agreed completion dates, building defects, registration problems - were offset by relatively low prices.


From January through September, St. Petersburg's City Registration Bureau registered 7,540 newly built objects and received 5,288 applications for building registration.


-Large-scale reconstruction: 1999 saw the completion of some big projects in the reconstruction of buildings in the historic city center: the Alba complex on Vasilievsky Island, and 7 Ochakovskaya Ulitsa just outside the center to the south, for example, as well as about a dozen others.


The majority of these projects were successful, based on the simple criterion that the apartments were sold. Thus a fully fledged sector for luxurious living space, with its own criteria and a defined pool of builders, had come into existence.


-The St. Petersburg administration's policy: The negative effects of the crisis were frequently bypassed thanks to some sensible and pragmatic decisions that were taken by the city administration.


Relatively speaking, the system of registration of residential property proved to be fairly straightforward (realtors, at least, don't seem to have any major complaints), and the procedure of transferring land for construction and ruined buildings for reconstruction has been ironed out for the sake of investment. It's not ideal, but at least it makes sense.


-Corporate solidarity: In the face of a general threat, realtors put their differences behind them and in many cases formed into groups with common interests.


Their main goal has been to develop common standards on the drawing up of documents and on closing deals, and then to make sure that market players abide by them. In 1999 at least, there were no major bankruptcy cases, and no reports of large-scale swindling.


Clients have to be on their guard, but the danger usually comes from individual conmen or fly-by-night firms.


Because licensed firms have kept up their reputations, faith in the market has gradually returned - faith that had been lost after the numerous scandals that took place over the past few years.


-Tax problems: For the third year in a row, federal authorities made noises about greater overall tax control. Now the talk is of amendments to the tax code that would let financial departments demand that people purchasing housing say where they get their money.


Lawyers tried in vain to explain that there was no cause for serious alarm, and that there were tried and trusted legal schemes for avoiding tax con trol, such as debt receipts and fake credit, to name just two.


People were worried, all the same, and their worries led to a hysterical demand for closing deals at any cost before the crackdown began.


As to the future of the market for apartments, predictions vary, but it is possible to say which ones seem more realistic than others.


The market for apartments is flexible, and less dependent on politics than, say, the commercial real estate market (offices, trade centers). This means that there will be no great difference between the "before" and "after" stage of the presidential or gubernatorial elections.


The first few months of 2000 will see a lowering of market activity: fewer deals will be made, though there will not be a significant reduction in prices.


Prices on the "secondary" market will stay relatively stable, and no abrupt jumps are expected.


In the apartment construction field, the situation is more complicated. On the one hand, the sale price of newly built property has already reached the threshold of profitability, and can't get any lower. On the other hand, it's impossible to rule out the possibility that there could be a huge sales crisis.


Say a company finances the construction of new buildings with the money it made finishing the last ones. Now, if market analysts have overestimated demand, St. Petersburg will end up with dozens of buildings that are still incomplete, but which have already been partially paid for.


Then the developers will be forced to sell apartments at a loss just to stave off bankruptcy. The first major scandal will lead to a fall in confidence, which, in the worst possible case scenario, could lead to a "domino effect" in which firm after firm collapses.


Construction firms also think that the priorities of purchasers will change: new material and technological factors will come into play. Old gray buildings will no longer be in demand.


Kariera-Kapital is a Russian-language business weekly published in St. Petersburg by Independent Media, which also publishes The Moscow Times.