Down and Dirty with the Property Recovery - Russia

Russia's property market (like everything else in the country) has more than its fair share of ups and downs in the last few years, but right now it is definitely in an up...

Russia's property market (like everything else in the country) has more than its fair share of ups and downs in the last few years, but right now it is definitely in an up.

Russia entered the recession in the final quarter of 2008 after its GDP contracted in Q3 and Q4, and a year later than its first contraction in Q3 2009 it popped back out of recession with a 0.6% growth in GDP, before returning to a yearly growth in 2010.

Research shows that the Russian real estate market was also very quick to recover. According to official figures completed apartments sales jumped 49% year on year in the first quarter of 2010. In its report into the market's performance in mid-2010 Clifford Chance opened by saying:

"The first half of 2010 shows that real estate markets have bounced back unexpectedly quickly, and it is not overly optimistic to expect full recovery of the sector by the time the next edition of this Overview goes to print in summer 2011."

This is backed up by many other sources. In September 2010, Reuters reported on a strengthening recovery in the Russian real estate market, being driven by the particularly strong resurgence in the residential sector.

Reuters quoted Steven Wayne, a long-time Russia investor whose group manages $300 million of real estate assets of all classes mainly in St Petersburg, who said:

"I'd say the bottom of the market was around April-May 2009. Things have recovered slowly, although nowhere close to pre-crisis levels."

Cushman and Wakefield predicted a strong recovery in the commercial sector in 2010 as well. In its report into commercial real estate in Russia for Q4 2009 the firm reported that the market had passed bottom as would see a sustained recovery in 2010. In subsequent reports throughout the first half of the year they reported on increasing popularity across the retail and office sectors, but failed to lay down any hard figures. In November 2010 Cushman and Wakefield reported that investment volumes in Russia's retail sector in Q3 were 8 times higher than Q3 2009.

The recovery has continued to strengthen this year in both the residential and commercial sectors. In fact, according to CBRE 2011 was a record year for commercial real estate investment in Russia, with investment volumes up 200% compared to 2010, with a total of 4.55 billion euros invested in the country. CBRE said that investment volumes in 2011 were 1.5 times higher than 2008 the previous record year. The record breaking 2011 was fuelled in no small part by the €840 million purchase of the Galleria Shopping Centre in St Petersburg by Morgan Stanley.

Christopher Peters, Director of Research, CBRE in Russia, said: "2011 was a record year for investment in Russian real estate. €4.55 billion was invested, which is over 1.5 times higher than in 2008, the previous record year. For the first time in a few years, Retail attracted the largest portion, and accounted for the largest deal: the sale of the Galleria shopping centre in St. Petersburg for over €800 mln in December. The share of foreign investors rose significantly from that in previous years, though domestic investors have accounted for the majority since the onset of the financial crisis. Yields in all sectors fell compared with 12 months ago. With slightly lower economic growth in Russia and globally in 2012 than in 2011, the record level is unlikely to be exceeded or repeated this year."

The only data I can find on the residential sector in 2011 is from the Global Property Guide, which said that while resale apartment prices rose 3.79% during the year to end-Q2 2011 according to the Federal State Statistics Service, that prices had actually fallen 5.25% when the price figures are adjusted for inflation. It goes on to reveal that Moscow resale apartment prices fell 5.38%, after inflation and St Petersburg apartment prices fell by over 15% after inflation.

Read more about Russia in the IPIN Member exclusive BRICs reports here

- Friday 02 March 2012

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