Moscow real estate goes from boom to bust
Real estate in the capital of the Russian Federation has an expensive reputation but with growth stunted by
Real estate in the capital of the Russian Federation has an expensive reputation. Moscow property prices skyrocketed after the country opened up to free market economics in the nineties and as the oil market went strong, it gained a name for big price tags. Nevertheless, the value of the ruble has tumbled to a historic low with a devaluation of about 100% since late 2014 amid the oil market turmoil. With growth stunted by
Price growth slower than leading global cities
Real estate price growth has been slower in Moscow during the last five years than in other major international cities like Hong Kong, London, New York, São Paulo, Istanbul and Shanghai according to Tranio research. Between 2011 and 2015, aggregate real estate price growth in Moscow was just 10.3% while Hong Kong and Shanghai gained 20%, London and New York 40% and prices in São Paulo and Istanbul more than doubled.
Real estate price growth
|City||Annual price growth, %||Aggregate
Source: Knight Frank, ZAP, Central Bank of Turkey
Property prices in Moscow are directly related to petroleum prices on the world commodities market. Between 2007 and 2009, Savills reported that apartment prices in Moscow fell 51% as crude oil prices plummeted. When oil sprang back during the next three months, so did the price per square metre. Since late 2014, oil prices have remained stubbornly low and it is reflected in the price of property.
Other markets are less dependent on oil. Real estate prices in London tend to be affected by changes to the tax regime (i.e. higher stamp duty) and political environment. For instance, talk of Labour replacing the Conservative government had investors worried ahead of the UK general elections in May this year. The Shanghai market was limited by restrictions on by property buyers in 2011. Istanbul, on the contrary, pursued a policy of attracting investments and developing the construction industry. In Brazil, the property market in São Paulo was stimulated by lower interest rates on mortgages.
Developed economies have expensive property
A country’s stage of economic development has a direct effect on the price per square metre. Moscow is a lot less expensive than in Hong Kong, London, New York and Shanghai but more expensive than Istanbul or São Paulo. For example, apartments in the centre of the Russian capital are
Price per square metre, USD
|Uptown property||Downtown property||Premium property|
Source: Knight Frank, Numbeo
The correlation between development and property prices is nothing new. Hong Kong, London and New York have the highest rating in Knight Frank’s UHNWI report, А. Т. Kearney’s Performance and Potential and the Global Competitiveness by EIU. They also have the highest real estate prices. Moscow is way behind these three cities on the Global Competitiveness rating and ranks closer to São Paulo and Istanbul for price growth.
Global City Ratings
|Report by||Mercer||Knight Frank||A.T. Kearney||EIU||Numbeo|
Expensive is a big word but it doesn’t really mean much out of context and according to the
Data by Numbeo, an interactive database on global cities, shows that in both Moscow and New York, a person earning the average wage would need to save 24 years to buy
Average saving time to buy property, years
Market entry thresholds in the world’s most vibrant cities are often out of reach for the typical buyer. Low interest rates have stimulated buying in some of these destinations, but in turn, this has encouraged price growth.
Bleak future for growth
Not only did Moscow real estate prices display the slowest growth over the last five years out of these six cities but it also displays the worst
Experts predict that between 2015 and 2016, prices on the secondary real estate market might lose 10% amid negative economic conditions and the unstable ruble exchange rate. The price per square metre is expected to return to levels last seen in 2011,
Moscow’s “golden square metre” seems little more than a myth now as Russia’s economy struggles to find its footing. While improvement on the oil market will herald recovery for the country’s ruble, the economy and its real estate market may be harder to revive.
This article by Tranio expert Yulia Kozhevnikova was originally published on Inman.com