Real estate turnaround picks up

Russia’s construction industry is likely to grow slowly over the coming years, with supply remaining high and developers also adapting to a slower market.

Developers and analysts agree that the skyrocketing price growth of 40% or more per year will not return soon, with Sergey Kozlovsky, President at Inkom, saying this reflects the reduced interest in real estate as an investment.

“The price bubble appeared due to the lack of space for sale. The market will grow but it won't be interesting as an investment anymore.”

The price of an average square meter fell 15 to 20% in 2009 and has stayed frozen for the past half a year, although there is some recovery underway in spring, with a modest 1% per month average increase. Anatoly Khrustalev, Head of NDV Real Estate believes the market will continue with modest growth.

“I think the market will grow by 7 to 10 % by the end of the year. Maybe it will grow an additional 5 to 7 % by next April.”

Other forecasts range from those pointing to optimistic government forecasts, to the more cautious expectations of financial analysts.

The amount of new-built housing fell by half in 1Q 2010, even compared to the crisis-hit year of 2009, and it could still take 1 or 2 years for construction to rebound.

Aleksandr Pypin, Head of Research at GdeEtotDom.ru, thinks any potential for insufficient supply may be partially offset by apatrtments previously bought for investment purposes returning to the market.

“A lot of flats built in the past ten years were bought for investment purposes. The number of these flats is significant. Now some of them are being offered for sale, compensating for the fall in supply of new construction.”

In order to head off a supply imbalance the state is providing more land for housing, but at the same time demand is likely to jump with mortgages becoming more readily available, which makes the downturn in construction over the last year the backdrop to a complex real estate outlook in coming months.