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. Last Updated: 07/27/2016

Regions Mirror Moscow's Rapid Price Rises

Itar-TassA building site in the center of Yekaterinburg, where per-square-meter realty prices went up 100 percent in 2006.
While many average Muscovites are struggling to cope with the much-publicized rise in house prices, the situation in the regions has become equally testing over the last year.

"Many other towns are repeating the same scenario as in Moscow. Dependent on the different regions, the prices have gone up by 30 to 80 percent," said Oleg Repchenko, director of the analytical department at IRN.ru, a web site that tracks the market.

"The most interesting regions are the Urals and Siberia, towns like Yekaterinburg and Novosibirsk, and in the south, towns like Krasnodar and Rostov-on-Don," he said.

According to statistics provided by various local real estate agencies, in 2006 prices for pre-existing properties, as opposed to new developments, rose spectacularly across the board.

In Yekaterinburg, per-square-meter prices went up over 100 percent to 64,200 rubles ($2,400), in Novosibirsk up 47 percent to 41,300, and in Rostov-on-Don 54 percent to 41,100 rubles, analysts and real estate agents in the regions said.

These figures are compared to an average price of 111,400 rubles per square meter in Moscow and represent a dramatic increase on figures for growth in 2005.

Experts from around the regions almost attributed the rise in house prices to a combination of a dramatic increase in mortgage lending and a shortage of available properties.

"The growth in prices is a simple case of supply and demand. There's a high demand for housing and only limited availability," said Ina Severinovskaya, an analyst at Titul, a real estate agency in Rostov-on-Don.

Data for last year released by Interfax in January show that the number of mortgages taken out has nearly tripled, with a nationwide rise in mortgage lending seen as a central part of President Vladimir Putin's national project for affordable housing. As ever more lenders have entered the market and interest rates slipped to 11 percent, taking out mortgages has become easier and the number of borrowers increased, taking the prices with them.

"Over the last year, the number of mortgages lent by Sberbank in the region has gone up 2 1/2 times," said Alexei Ananyev, the commercial director of Perm-based real estate agency Perspektiva. "In 2007 the number of mortgages issued should double again."

With some people having to pay out over half their income to cover their mortgages, difficult times could lie ahead, said Yelena Yermolayeva of Novosibirsk market analysts RID Analytics.

"The mortgage market has grown very quickly and up to half the deals done nowadays involve mortgages," Yermolayeva said.

"In the distant future this could be unsustainable and lead to some sort of collapse and an increase in bankruptcies," she said.

In other regions, analysts were keen to point to the effect that the limited availability of new properties has had on the market.

"The situation in Samara is worse that in the other regions. Over the last year there has been a drop in construction and there is now a serious lack of new housing here," said Maxim Khvostov, director of the real estate department at the Samara-based firm Dissa.

Citing difficulties in adapting to construction legislation passed in April 2005, Khvostov said he expected the rate of construction for new housing to increase significantly in 2007 and price rises to ease.

As the regional markets have boomed, some experts said price rises were attracting outside investors, leading to costs being artificially inflated still further.

"When prices begin to go up then naturally investors begin looking to invest their money in real estate," said Liliya Faizullina, an analyst at Yekaterinburg-based real estate agency Yarmarka.

Faizullina stressed that purchasing habits for private individuals and investors varied greatly and that number of private individuals far outweighed investors, however.

"Investors usually buy new houses whereas individuals buy pre-existing properties," she said.

With the most dramatic increase in spending coming from private individuals flush with recently acquired mortgage loans, the rise on prices for already existing properties has therefore far outstripped the rise in prices on new developments. Brick, paneled and Khrushchev-era properties have seen a particularly steep rise, as have smaller one- and two-room apartments.

Many analysts think that 2007 will see a slowdown in the rate of price rises around the regions, with increases dropping from 10 percent to 20 percent.

"As in Moscow, many of the regions are reaching their full potential for growth," Repchenko from ING.ru said. "There was a reason for the rise in prices and prices rose, now the market is heading for a period of stabilization."

With initial predictions for 2006 proving well under the mark, however, some experts are cagey about offering concrete predictions.

"Its really difficult to speculate on what will happen," Yermolayeva said. "If we seeing a lowering in the interest rates for mortgages over the next year, then we could see a similar, or even greater, rise in prices as in 2006."