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St. Petersburg Real Estate Statistics 2009 – 2010

The market period from the beginning of 2009 to fall 2010 was notable for its transition from a phase of sharp decline to a phase of steady stabilization. Whereas the decline in the average price per square meter on the secondary market continued in ruble terms, and halted in the beginning of 2010 at about 24%, it remained constant at the level of around 35% in U.S. dollar terms beginning in spring 2009. This can be explained by the fact that after the sharp decline in the ruble exchange rate, its smooth recovery began and it remained at 31 RUR/USD.

In other words, the market stabilization phase in hard currency terms began in March 2009, and in ruble terms in February 2010.

Russian real estate statistics
Changes in average price on the St. Petersburg residential real estate market over the 2009-2010 period

The consequences of the world financial crisis struck a stinging blow to the Russian banking sector. This led to the almost complete cessation of mortgage issuance in 2009. In 2010, the situation began to gradually right itself and loan rates finally began to approach their pre-crisis level (9% in 2008 compared to 12-14% in 2010). Of course, double-digit interest rates are still high, and banks’ requirements for borrowers are much more demanding than before the crisis, but a positive trend is present. The small number of loans issued also has to do with the reduced overall income level of the population.

The reduction in demand and sharp increase in interest rates for businesses led to intense stress for the construction sector in 2009. Several construction companies went bankrupt, and most of the others postponed ribbon cuttings and froze the construction of many residential buildings. As a result, consumer demand was redirected towards the secondary market, which formed an additional support for stabilizing the situation. The reduction in construction volumes has a delayed effect, when the reduction in the number of new properties under construction leads to a reduction in supply with a lag time of around two years.

Overall, the price trends are not strongly different from the situation during the 1998 financial crisis, when USD prices fell somewhat more sharply (by 39%) but the decline was smoother and lasted for about a year. The stabilization phase then lasted about a year as well and ended with steady growth.

Conclusion:

While the market continues its lengthy phase of equilibrium, it may soon transition to steady growth. Robust economic recovery on the back of quite high and stabile oil prices in conjunction with growth in mortgage loans and insufficient new construction inventory are the prerequisites for growth in the average price. The first signs of growth in demand on the secondary market are confirmed by data on the number of registered secondary market transactions (32,290 for the first two quarters of 2010, compared to 28,644 for the same period in 2009).

	2005	2006	2007	2008	2009	Q1, Q2 2010
Registered purchase-sale transactions	50,830	58,282	71,272	70,546	60,013	32,290
Number of mortgages issued (mortgages pledged by act of law)	795	1,586	3,952	4,178	2,235	----

With a certain amount of caution, it can be said that we are in a reasonably good period for investing in residential real estate. Prices are stable, and for the time being, the possibility of negotiating prices downwards still remains.

Note:
The average prices for real estate given in this document may not be used for appraising real estate property, and serve only to illustrate their changes over time.

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