After a relatively short stabilization period (about seven to nine months), prices on the Moscow housing market jumped 25 to 30 percent in the first half of the current year (1H08), according to development and realtor company statements in the reporting period.
Secondary market
The price dynamics on Moscow's secondary housing market in 1H08 are unlikely to make people optimistic about buying residential property in the capital in the foreseeable future, although they will definitely please the sellers.
According to data from Savva realtors, from January to June, apartment prices in Moscow on the secondary housing market grew by an average of 25.6 percent, to $6,692 per sq m.
The average price of a one-bedroom apartment on the secondary market rose by 29.1 percent, to $6,831 per sq m. Two-bedroom apartments were up 25.88 percent to $6,824 per sq m, and three-bedroom units jumped 23.1 percent to $6,463 per sq m.
Agent 002 analysts say in the first six months of 2008, the price of one square meter in apartments worth up to $500,000 rose by an average of 23.29 per cent, to $5,674.
Vladislav Lutskov, head of Miel realtor's analysis and consultation department, said that the price of apartments in the capital has broken through yet another important psychological barrier, rising in the first half of 2008 by 29 percent to $7,055 per sq m.
"Instability on global financial markets has been the main factor in house price hikes in Moscow," Lutskov explained. "After the stagnation of late 2006-mid 2007, pent-up demand set off a buying spree among those who had moved away from stock and currency markets and into real estate."
There was a psychological factor at play, according to the Miel consultant. Amid economic uncertainty and fluctuations in the exchange rate of the dollar, private players on the secondary market often chose to postpone selling their apartments, which reduced supply and spurred prices.
An Inkom Corp. analyst adds that "economy class" properties were the "engine" of price growth in Moscow's real estate market.
"Prices for apartments in Khrushchev-era five-story blocks, standard and modern panel buildings - i.e., residential properties in the ‘economy segment' - did not show a drop, nor did they stop rising for a single week of the year. As a result, whereas average asking prices in 2008 grew by approximately 23-24 percent, prices in the five-story walk-up category rose significantly higher - by more than 30 percent," he said.
Newly built
The movement of prices on the primary market in Moscow closely follows that in the secondary market.
According to Miel, prices for newly built apartments in January through June 2008 rose by an average of 27 percent, with the average asking price on the primary market (factoring in business class and luxury properties) reaching $7,673 per sq m.
Experts say the lowest price for a newly built apartment was recorded in June 2008 in the southeast of Moscow at $5,659 per sq m.
According to Olga Yumatova, of ZAO Peresvet Invest's information and analysis department, in the first six months of the year, prices on the primary market rose by 18.55 percent, to $5,266 per sq m.
She adds that in June prices in this segment even dropped a little, by approximately 1.6 percent, month on month, as traditional summer season discounts from developers kicked in. However, according to Agent 002 specialists, prices for "standard" apartments on the primary market (up to $500,000) rose 16 percent, to $4,219 per sq m, while in the estimate of Glavmosstroi Nedvizhimost's press service, prices in this segment were up more than 25 percent.
"The first four months of the year witnessed robust growth on the primary market," a Glavmosstroi manager said. "There were several reasons, such as instability on the Russian stock market at the start of the year, rising inflation, decline of the dollar, and rumors about the re-denomination of the ruble. As a result, many people hastened to invest their savings in real estate properties and thus provoked sellers into pushing up prices."
But the Miel expert linked the rise in apartment prices on the primary market to an acute shortage of economy class housing in Moscow.
"Compared with the start of 2008, overall supply on the Moscow market fell by 5 percent. The reason for this is that construction projects in the economy and medium price range have been moving to areas just out of the capital," he said. "Supply in the panel block segment shrank by 26 percent, while supply in the medium price range declined by 23 percent."
Seller's market
The first six months of the year on saw a general worsening of terms for the buyers.
In particular, says Larisa Patlukh, general director of the ZAO Byest Nedvizhimost managing company, the drop in supply on the capital's real estate market caused a sharp fall in the number of so-called alternative [multi-stage] transactions (trans-actions involving the sell-off of one property and the purchase of another. - Ed.).
"Instead of the usual 22,000 to 23,000 properties, only 15,000 were available in March, while by May the number declined to 12,000. Meanwhile, ‘alternative' transactions became difficult: It may take several months to arrange a transaction scheme, and in this time the seller can raise the asking price and ruin the deal overnight," Patlukh said.
Another hint of problems on the secondary market was the increase in the "exposition time," i.e., the time that it takes to sell an apartment, Savva analysts say. The average exposition time was 60 days, compared with 42 days in March.
According to Lutskov, by the middle of the first quarter, the volume of supply in the economy and medium class segment in Moscow shrank significantly, from 9-10 percent to 4.7 percent and from 30-31 percent to 26 percent, year on year, respectively.
Mortgage Blues
In a poll conducted by RIA Novosti on its web site, asked "What stops you from buying an apartment through a mortgage loan?" over 32 per cent of respondents said, "small wages."
Home loans in Moscow are becoming more and more difficult to obtain - not only because of the rising house prices, but also because banks have tightened their loan policies.
"Demand for mortgages has remained unchanged," the Glavmosstroi Nedvizhimost manager said. "But as a result of higher interest rates, the demand to provide guarantors and confirmation of official income, as well as limits imposed on the amount of loans, home buyers have started looking for other options."
According to Patlukh, that has caused a 30 to 50 per cent fall in the share of mortgage deals on the capital's real estate market.
"Mortgages have become less affordable. Mortgage deals in Moscow in the first half of 2007 accounted for 15 per cent of total transactions. Now this share has plummeted to 5-10 per cent of the total," she said.
On the up
The 20-30 per cent increase in home prices in Moscow, both on the primary and secondary market, compounded by a general worsening of the market situation, is rather a disturbing trend, especially amid soaring inflation in Russia. Nevertheless, residential real estate market players are convinced that home prices in the capital reached their peak in January through June, so from July to December, prices are not expected to rise at rates recorded two years ago.
