Economy-Class Segment Leads Residential Market
Last year, 20,923 mortgages were issued in the city, according to data provided by Maris.
Published: June 22, 2012 (Issue # 1714)
KNIGHT FRANK
Executive apartments such as Respect House make up 30 percent of the market.
Studios and small one-room apartments are the most in demand on the St. Petersburg residential real estate market.
According to data from Maris real estate company, part of the CBRE network, about 65 percent of all residential real estate that was launched on the market in 2011 were economy-class apartments.
“The demand is explained by the fact that with an income of about 29,500 rubles ($900) per month, the average St. Petersburg resident can buy a studio in a newly constructed building only after five or six years of hard work,” said Konstantin Mamykin, director of Maris’ residential real estate department.
The average price of one square meter in a newly constructed building in St. Petersburg is 79,620 rubles ($2,420), according to data from BSN real estate analysis site from June 19. The price varies depending on the quality of the building, so apartments in pre-fabricated buildings cost about 81,050 rubles ($2,465). Apartments in new brick buildings are sold for about 102,640 rubles ($3,120) per square meter. In apartment buildings made of both brick and concrete, the cost is 76,630 rubles ($2,330).
However, even if a St. Petersburg resident earning the average salary saves every kopeck of their income, after six years they will have earned only 2.1 million rubles ($63,870). With inflation, that sum is hardly enough to buy a one-room apartment.
As a result, newly constructed buildings in the Leningrad Oblast outside the city are gaining popularity. Properties in outlying districts such as Kudrovo, Ukki, Vsevolozhsk and Sertolovo are generally much cheaper than those in St. Petersburg. Prices can be as low as 42,000 rubles ($1,280) per square meter or 1.3 million rubles ($39,500) for a 28-square-meter studio apartment, according to the BSN website.
“There are also some projects with modest prices in the city suburbs, including in Shushary, Slavyanka, Bugri, Devyatkino and Murino,” said Dmitry Speransky, an analyst at BSN website. “Some of these towns are located within the administrative borders of St. Petersburg, while others fall outside the city and are part of the LenOblast.”
But when price is the determining factor, it can become dangerous, as the price may become a priority over the reliability of the developer.
“When the price of the apartment is right for the potential customer, risk evaluation consists of only two or three questions to the developers. Customers often ask whether the developers follow federal law 214 FZ and what they built before and where,” said Mamykin.
Federal law 214 FZ regulates the rules and protects the customer in construction projects in which buyers pay in advance to finance the construction of the building. The law holds developers responsible before buyers and obliges the company to compensate any material losses incurred by the buyers.
“But even if the developer offers a preliminary sales agreement or an advance construction financing agreement, the low price tips the scales in favor of the purchase,” Mamykin explained.
“Only 10 to 15 percent of customers make an attempt to check permits and other documents. Also, about 30 percent of potential buyers will never buy an apartment that has not yet been built, as they want an absolute guarantee that the contract will be realized,” he added.
The current economic situation and high prices mean people are forced to take out a mortgage. In St. Petersburg last year, 20,923 mortgages were issued, worth a total of 28.9 billion rubles ($879 million). The average amount of the loan was 2 million rubles ($60,830), according to Maris data. Sixty-eight percent of banks on the mortgage market are state banks.
“The relatively low sum of the mortgage loan shows that buyers use mortgages to gradually improve their living conditions or use this money along with their own savings,” said Natalya Kireyeva, a senior analyst at Maris’ consulting and valuation department.
In 2011, the typical mortgage borrowers were men in their thirties with a university degree and an officially declared income. Thirty-two percent of them worked in retail, 18 percent in education and 14 percent in medicine. The usual co-borrowers were wives. Borrowing couples usually had a child and a total income of 80,000 rubles ($2,430) per month. They bought two-room apartments and took out a 2.2-million-ruble ($66,900) loan to be returned over a period of 15 to 20 years, according to Maris research.
Maris expects that without any serious changes in the economy, there will be between 550,000 and 680,000 mortgages issued in 2012, worth a total of between 800 billion and 1 trillion rubles ($24.3 to 30.4 billion).
Executive apartments occupied 30 percent of all residential real estate launched on the local market last year, according to Maris data. Such apartments are situated in prestigious locations, and generally have one room, with total areas of between 40 and 55 square meters, and parking space. The average price of one square meter in the first quarter of this year was $3,600, according to Knight Frank real estate consultancy data. The improving quality of newly constructed buildings allows developers to charge high prices and focus on customers with high demands. Buildings with fewer apartments are the most in demand, as residents believe they can find privacy and neighbors of a similar social class.
Such buildings are also popular in the elite residential real estate sector, which totals only 5 percent of the local residential market. This sector is stable, but with the sale of exclusive properties, rates could easily increase. By the first quarter of 2012, the price for one square meter in an elite apartment was $9,020 in newly built housing, according to Knight Frank data.
“The demand for housing has moved from existing apartments to newly built ones, as many potential customers have realized that infrastructure problems often encountered in old buildings are not up to their modern-day requirements. This includes, for example, existing apartment buildings that house communal apartments in the neighboring entrance or square ‘kolodets’ courtyards,” said Igor Onokov, general director of Leontievsky Mis elite residential complex.
The most expensive residential real estate project at the moment is the “Building near Tavrichesky Garden,” where one square meter costs more than $21,000. According to Knight Frank research, Russia holds eighth place on the list of growing residential real estate prices in the world.
The historical center sees the most demand, but housing here is limited, partly due to the fact that the construction of new buildings is strictly limited by governmental laws, according to Knight Frank specialists.