How will the Moscow region’s realty market develop?
There is life outside the Moscow Ring Road (MRR), but not after the 20th km. Our observer came to this conclusion having attended a business brunch organized by the “Kommersant” PH. The topic of the event was “Life outside the MRR: development of the Moscow region”.
The developers working on this market and the authorities’ representatives discussed the issues of the development of the region’s outskirts and tried to determine what market segments will be most in-demand in the near future.
It turned out that developers feel rather confident about the market – but only in districts close to the capital. As far as faraway districts are concerned, the demand for real estate tends towards zero.
The farther out, the worse
— 27m square meters of housing are being built this year, which is flats for 1.2 m people, the Deputy Chair of the Moscow regional government, German Yelianiushkin, said, sharing statistical data with the participants of the meeting. — 450,000 flats are on sale on the primary market. Those who will live in the Moscow region but work in Moscow are likely to buy them. At present, there is a job deficit of more than 1m vacancies in the Moscow region.
— The only way out is to develop business activity, German Yelianiushkin stressed. — Last year, 1.8m sq. meters of business realty was put in operation, and this year it will increase to 2.5m sq. meters.
However, the progress rate is not sufficient. According to the official, 72,000 jobs were created in the Moscow region last year and 24,000 this year. Keeping in mind the need for 1m, one may conclude that housing construction is well ahead of business.
The Chair of the Board of the “NDV Group” GC, Alexander Khrustalev, thinks that housing will be sold in the Moscow region when the traffic infrastructure is organized correctly.
— For example, in New Moscow, construction permits for 21m sq. meters have been issued According to our calculations, if the current rate keeps up, there will be flats there for 85 years, but only for settlements which are not farther than 20 km from the MRR.
— All constructions located farther have simply stopped. Developers will have to sell flats below cost, Khrustalev said.
Moscow or the region?
According to the Director of the Housing Policy Department of the Ministry of Construction, Housing and Utilities, Nikita Stasishin, it is necessary to regulate the interrelation of the two large areas – Moscow and the Moscow region – to solve the problems of housing in the Moscow region.
— All infrastructure created in the Moscow region is limited within a distance of 10 km from the MRR, the official said. — The amount of housing being built now is frightening.
And the closer to the MRR, the more frightening: with high built-up density, new micro-districts lack social infrastructure and parking.
— Now we are discussing schemes for territorial planning: the location of settlements, the use of transport, the towns’ general plans, German Yelianiushkin said. — Implementation plans are being developed for contractors: having built 1,000 sq. meters of housing, one should build 65 sq. meters of nursery schools, 135 sq. m of schools, a park, a church, emergency services, a post office, etc.
However, developers are optimistic about the growth prospects of the Moscow region.
— If we focus on job creation and strictly regulate development, in 4-5 years the Moscow region will be much more comfortable for living in, Alexander Khrustalev is sure. —More than that, the capital’s residents will go to the region. We took an opinion poll and found out that 80% of Moscow residents would move because of bad environmental conditions in the metropolis.
The panel is growing
The future is more or less clear. But what of the present? How do the Moscow region’s developers feel in these complex conditions?
According to the Vice-President of the Moscow Regional Developers’ Association,Vladimir Voronin, the demand is growing in the cheaper segments: panel housing and small flats.
— In 2014, panel houses made up 10% of the total construction volume, and in 2015 it was 30%, and in 2016 this figure will be 40%, the developer tells us.
Actually, technologies for panel housing construction have developed greatly: the time required for the construction of such a house is only 3 months, and repair work is 4 times cheaper in a panel house.
— It is especially important during the crisis, when people are afraid to buy housing at the zero stage, Vladimir Voronin continues. From this standpoint, panel housing is a good way to revive construction sites – it will take only 3—4 months to finish the work.
Builders of low-rise housing feel rather confident about the market, though the situation is a bit more complicated.
— Implementing a complex low-rise project provided with all infrastructure, one may make the same profit as in high-rise construction for 1 sq. meter,says Boris Tsyrkin, Managing Partner of the KASKAD Family GC.
Meanwhile, it is more difficult to work on this market than in high-rise construction. According to Alexander Khrustalev, several dozen companies have gone bankrupt.
— Our statistics show that about 100 settlements where townhouses were being built have stopped, the expert says. — Look at New Riga: concrete jungles, and sooner or later something will have to be done with it.
As German Yelianiushkin is sure, low-rise construction will keep developing only where necessary, but the future belongs to large sustainable companies.
— A year ago, 594 companies were working in this segment, but now the figure has gone down by 10%. Some companies completed their objects and did not go to this market again, as they understood that any experimentation leads to loss of money.
The segment of low-rise construction is really very complicated, and the smallest mistake may bring a businessman into the red. But, from Boris Tsyrkin’s point of view, a developer who creates a unique environment with good architecture and planning will not lose out.
— Demand on the low-rise housing market has shifted to really high-class objects, the developer stressed. Buyers have become very clever in choosing between good and excellent.
Against the falling market
In the meantime, developers are feeling some threats on the market. As Alexander Khrustalev thinks, developers should be aware of any economic shrinkage. If oil goes down to $45 a barrel, problems will start again, and the reason is the excessive market.
— The market seems to be on the edge of breaching, the expert says. 5—10 construction sites are started daily. Too many dilettantes - up to 50% - are present on the market.
Of course, it is impossible to monitor all contractors on the market, Nikita Stasishinadmits, but it is necessary to struggle against those who come just to make money and leave.
— The requirements towards co-financing agreements have been made stricter and indemnification funds to enhance contractors’ reliability and people’s trust in co-financed construction are to start from January 1st, the official states. — Mortgage loans are very available now, and we have to work with housing quality and terms observance.
Residents’ trust in a contractor in falling market conditions is critically important. If people stop buying realty at the zero stage, the market will flop.
— At least half of housing is being built with co-funders’ money. If a developer does not have this money, he will go bankrupt, German Yelianiushkin is sure. — But the most important thing is not to support mortgage loans, but to give developers access to project credit, because it is a death-knell to use 25% of non-existing profit to pay the credit rate.
According to the Moscow regional government’s statistics, only 165,000 of 450,000 properties on sale are documented with co-investment contracts. So, about 75% of flats have not been sold. If a block of flats has been constructed, and the flats in it have not been sold, they may be in limbo for years.
— But let us not finish our conversation on such a sad note, Nikita Stasishinconcluded to the participants of the business brunch. —In 2014 – 2015 record volumes of housing were registered. This means that industrial house construction is in-demand, and is being regulated by the market. The developers building quality housing will not lose out, he summarised.