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The Secondary Market of Residential Real Estate in St. Petersburg, Russia
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Results of 2005 and Trends of the Beginning of 2006
The information contained herein consists of the average value for residential real estate in all districts of the city. It is also important to take note that the given prices correspond to a greater extent to the prices for typical flats in the outlying residential communities (bedroom communities) of the city and in no way can be associated with actual prices for flats in the most prestigious areas of the historical center of the city, where prices up to as high as $10,000 per square meter have been offered on the market.
Our agency can offer clients detailed statistical market analysis for particular areas of the historical center of St. Petersburg. This is commercial information available on request.
1. Overview
Weak growth of prices on the real estate market continued for the first six months of 2005. The minimum was reached in July (Fig.1).
Trend in the Average Price for Residential Real Estate in St. Petersburg (2005-2006)
Fig. 1
In December 2005, average prices for apartments in Saint Petersburg grew to $1175 per square meter (EIP information). In the last quarter of 2005, prices for flats were growing at a rate of approximately 1% per month – apace with the official level of inflation. Compared to the end of 2004, a square meter in St. Petersburg grew by 1.5% (4.5 % in roubles).
Compared to the beginning of 2005, the behavior of sellers and buyers in St. Petersburg changed significantly. In the spring, sellers were ready to negotiate the sale prices of their apartments downward. The difference between the published price advertised and the actual price could often reach 10%.
By the summer, the general tone of the market changed with prices negotiated downward of not more than 2-3% (the usual discount in 2002-2004).
The housing market in St. Petersburg cooled significantly compared to the housing market in Moscow. Since May of 2005, prices have been growing steadily. Average growth for Moscow apartments has been 26%.
Average Price Dynamics per Square Meter in Moscow and St. Petersburg Compared to January 2005 (%)
Fig. 2
As a result, at the beginning of 2005, apartments in St. Petersburg were priced on average 67% below those in Moscow while at the end of the year the difference in price between Saint Petersburg apartments and Moscow apartments had already grown to 108%. Many experts believe that in 2006 the St. Petersburg real estate market will lower the gap to a more historically ‘normal level’. More rapid growth in St. Petersburg is expected in 2006 (25-30 % per year).
The stagnation the St. Petersburg market witnessed in 2005, gradually turned into slow but steady growth by the beginning of 2006, repeating the situation that developed after the crisis in 1998 (Fig.3).By February 2006, the average prices in some mass housing market segments exceeded $1300 per square meter.
Trend of 1997–2006 (Stop-and-Go Stagnation Cycles)
Fig. 3
The overheating of the housing market at the end of 2004 and, as a result, the stagnation of 2005 indicated that the market has reached a new stage of development. It is already clear that prices have started to grow slowly but steadily.
Today (spring 2006), the average price per square meter is growing at 0.5% per week. In the first two months of 2006, residential property grew on average more than 4% and reached $1200 city wide (Fig.1). Analysts expect sharp growth of prices in the second half of the year: already in June the average price per square meter is expected to exceed $1300.
Secondary Market Dynamics (Registered Purchase and Sale Transactions)
Fig. 4
For apartments in Moscow, we can already observe a sharp growth of prices. At the end of February 2006, prices for the least expensive flats (in concrete panel Khrushchev-era 5-storey buildings) grew by 2.1-2.3 % per week. It was not unusual to observe price growth of 10-12 % within several hours from the moment property was listed on the market through publications.
Auctions are becoming popular once again. Real estate agents have revived the practice of changing prices without asking the seller first; agents adopting this method can receive up to 15-20 % (the difference between the original and the final price) for successful transactions.
The St. Petersburg apartment market traditionally reacts to changes more slowly than the Moscow market after a certain lag period. Therefore, the local market is expected to follow a similar direction as Moscow within several months.
2. Privatization News
In 2005, privatization became a serious issue for citizens. Over 125500 flats and rooms were privatized in 2005, 61% more than in 2004. The absolute record was set in December, when 15 000 contracts were registerd.
Registered Privatization Transactions in 2005
Fig. 5
Even with the increase in the rate of privatization, the rate is rather slow. Approximately 40% of the flats in St. Petersburg were still not privatized by years end. In order to privatize all residential property in 2006, the pace would have to be 5x as fast.
3. Mortgage
In 2005, Russians borrowed approximately 3 billion dollars from banks with the goal of purchasing flats. According to RBC analysts, the total mortgage debt grew to 4.5-4.9 billion dollars.
Mortgage money accounts for 0.6 % of Russia’s GDP compared to the European level of 30-35 % and the level of the new EU members – 5 %.
St. Petersburg registered three times as many mortgage-based transactions in 2005 than in 2004 (twice as mancy according to other sources). The number of loans has been growing at a rapid pace for several years in succession. Experts believe that 2006 will not be an exception.
Mortgage Lending Growth
Fig. 6
It is still quite complicated to receive a mortgage for an average resident of St. Petersburg – therefore, we do not expect an explosive growth of mortgages in 2006. However, the situation is slowly changing.
As a result of joint efforts of the Government and the financial sector, the initial installment was reduced from 25-30 % to 15-20 %; the majority of banks do not require legal income statements to approve mortgages as was necessary in the past; the average loan period was extended by 5-10 years. The average amount of each loan as well.
An increase in the supply of money from banks available for loans will undoubtedly lead to a price rise on the real estate market. However, we have yet to understand how mortgage evolution will influence consumer preferences.
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