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. Last Updated: 07/27/2016

Moscow Flat Prices Set to Break Record

Moscow's real estate prices are soaring, and market participants say this year's increase might even break the record set in 2003, when apartment prices rose by 40 percent.

Economic factors are not the only cause, however. Experts say the growth is also driven by a consumer rush, which is forcing the hands of residential builders and sellers.

Large construction companies have been sharply increasing their residential prices. SU-155 and PIK said they had raised prices by an average of 15 percent since December, while Novaya Ploshchad has increased its prices by 10 percent since January.

A housing rush in October and November caused the price hikes beginning in December, the Moscow Department of Construction Investment said.

For SU-155, the rush began during the holidays in the first week of January. "We did not expect such lines," a company representative said, adding that the heightened demand had continued.

The vice president of Best-Nedvizhimost, Mikhail Gorokhovsky, said that in December and January apartments sold on average within three weeks of entering the market -- almost half the time required for sales in fall 2005.

The situation in the primary market is such that Miel real estate agency had to cut its realtor staff by 30 percent. "We cannot provide them with work -- demand in the primary market is more than double the supply," said Oksana Kaarma, Miel's deputy director for new construction management.

The total volume of new residential property on the market fell by 16.9 percent in 2004-05, from 5.725 million square meters in 2004 to 4.758 million square meters in 2005, said the head of real estate indicators web site Irn.ru, Oleg Repchenko.

At the same time, the number of apartments on the market dropped during 2005, from 25,760 apartments in January to 19,289 in December, according to data from Mian Realty.

PIK's general director, Daromir Obukhanich, said pent-up demand was one of the reasons for the rise in prices. Stagnation followed the 40 percent price increase in 2003, with potential buyers delaying purchases.

Repchenko, however, said the housing shortage had arisen due to a new federal law that regulates the funding of apartment-building construction. "Earlier, many apartments went on sale without full documentation. But that is prohibited by the new law, and those apartments -- which account for 30 percent of the total -- have not gone on sale."

"The worst forecasts are coming true," said Sergei Lyadov of Siti-XXI Vek. "Stimulation of demand without an increase in supply causes a rapid rise in prices."

Repchenko offered a different prognosis. "A property whose construction was postponed will come onto the market after some delays. If the problems with new construction are solved in the near future, the market will stagnate. If the rush continues, next year may see a crisis of price reductions."

In any case, the outlook for this year is price growth. "The minimum growth in prices this year will be no less than 30 percent," Mian real estate agency said.