Russia has been having a real estate crisis lately after its peak in 2013. This was mostly due to the crisis in Ukraine and the fact that Russia has been building the most apartments since 1989.
Unfortunately, its economy is slowing and it seems to have been influencing Moscow’s resale apartment prices. During the first quarter of 2014 the prices fell by 2.13% with an 8% fall when adjusted for inflation. It seems that the price for older apartments has been the one that has been taking the highest blow and the situation in worse in Moscow than in any other Russian city. According to Russian real estate experts the price per square meter is around US$ 5,381.But this hasn’t stopped the building of new apartments as the first half of 2014 has been marked by a rise in apartments being built. This is attributed to the crisis in Ukraine which has led the demand to grow significantly.
A different story happens in St. Petersburg, as it seems that resale apartment prices have increased in the first quarter of 2014 with about 1.64%; after inflation there has been a 4.6 fall reported.
Overall in Russia the prices seem to rise by a few percent but after inflation adjustment they fell. Experts believe that this is the time when the real estate boom in Russia will come to an end, others believe this is just a temporary fall and it will soon resume its former real estate glory. Whatever it is one thing is for certain, Russia did experience a big housing boom with secondary market prices going up by 436% while primary prices rose to 362%. But that was up until 2009 and since then things have balanced with prices either going up or down with a slight increase over the years. Although the prices rose in 2012, the average price for new apartments in Russia is still about 5.4% down since the 2008 peak price and experts say it might even go lower.
At the beginning of 2014 the Central Bank started raising Russia’s interest rate; it first happened in March and it was increased from 5.5% to 7% and the second time it happened in April when it was increased to 7.4%, making it the highest rate of inflation in Russia since August 2011. This was done due to the country’s financial instability; the instability was mostly influenced by inflation and the crisis in Ukraine.
In the next couple of quarters the Central Bank of Russia will try to impose certain inflation goals but this will not be without inflationary risks. Things might get even more serious if the crisis in Ukraine continues. But how much will the property market be influenced by this? It’s very hard to predict what will happen but one thing is certain: one out of four properties that were bought in 2013 was bought on a mortgage and this might prove tricky with the economy being as it is.
Experts are advising people to avoid Moscow for now and concentrate on St. Petersburg where the apartments have higher yields even though rents are a bit lower than in Moscow.
Another problem with buying real estate in Moscow is the fact that there have been new property laws issued in 2014 which can be tricky because the effect hasn’t been seen yet. Although those interested should be patient before buying, Russia is still a good place to invest in real estate as even with the EU and US sanctions it still had growth in the first quarter of 2014.