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. Last Updated: 07/27/2016

St. Pete Hopes for a Real Estate Miracle

MTA building going up near the Aurora cruiser is one of a shrinking number of new real estate projects in St. Petersburg.
ST. PETERSBURG -- With the aid of an amended law on land distribution, the construction industry is hoping to stimulate the St. Petersburg residential market, which faces both a deficit of new projects and surging real estate prices.

At a round table hosted by Interfax in early June, industry representatives said construction of residential projects by local companies had decreased compared with the same period last year.

According to the St. Petersburg Union of Construction Companies, offerings of new apartments in the city this year dropped by 10 to 15 percent, compared to 2005.

From December to March, the average price of real estate per square meter increased from $1,034 to $1,134. The shortage in new residential premises will increase in line with the price growth, experts said.

"The current price growth is related not only to an increase in demand but also to the market's shrinking," Yevgeny Kaplan, vice president of construction firm Soyuzpetrostroi, said in a report on the construction market released earlier this month.

Since October 2005, land for residential construction has been distributed through auctions that require comprehensive documentation. "During that six months, only 12 land plots were sold through auctions, which is 10 percent of the residential construction market's needs," Kaplan said.

Of 36 land plots located in areas without housing infrastructure and offered for sale, only eight were actually sold.

"The next two years will be very difficult for the residential market. The offering of new apartments could decrease by 30 to 40 percent. Prices, in the best case, will increase up to $2,000 per square meter. This is already unavoidable," he said.

At the round table, experts and local authorities discussed the procedure of land distribution and its potential to improve the situation on the residential market.

On May 10, St. Petersburg City Hall approved amendments to the legislation on the construction and reconstruction of city-owned property. On May 21, the new law came into effect.

"The law as amended should considerably improve the efficiency of tenders organized in the city to distribute real estate sites," Soyuzpetrostroi experts said in a statement.

According to the previous legislation, only the investment department at St. Petersburg City Hall could initiate the preparation of documents to offer a particular site for tender.

The amendments allow potential investors to choose sites and prepare documents for tender themselves, which should increase the number of sites offered for tender and simplify obtaining land for construction.

The law also lists reasons for an application's rejection.

The St. Petersburg Property Fund, which as an institution is seen as having a greater interest in efficient land distribution than the investment department, will be responsible for choosing the company with the best proposal. The law also increased compensation for preparing the tender documents from 5 percent to 10 percent of the land cost.

Alexander Belenky / MT

Construction companies are hoping new legislation will boost the industry.

At the round table, St. Petersburg City Duma Deputy Vladimir Golman admitted that the St. Petersburg construction industry in general suffered from the slow pace of the land-distribution process.

He agreed that the procedure for land distribution had been inefficient. "Small companies that are running one or two projects at the moment will complete them and simply quit the market," Interfax quoted Golman as saying.

However, the proposed solution will not necessarily be effective, given the scarcity of new apartments and price growth.

"Construction companies postpone the sale of new apartments on purpose. If the price is constantly growing, it is, of course, more profitable for the constructor to sell the flat two weeks later for $1,500 per square meter than right now for $1,400 per square meter," said Nikolai Krutov, deputy chairman of the construction committee at St. Petersburg City Hall.

Golman described the situation more dramatically. "Few people are ready to pay $1,500 per square meter. There is no affordable residential real estate market. And if action isn't taken, it will not appear," he said.